Effects of Federal Loans on First-Year College Student Retention, Transfer, and Dropout.

This study examines how different levels of federal student loans affect first-year college students' persistence outcomes—retention at the initial institution, transfer to another institution, or dropout from the higher education system—using data from the Beginning Postsecondary Students 2012–2014 (BPS:12/14) survey and employing marginal mean weighting through stratification (MMW-S) to address selection bias. Findings reveal non-linear effects: low loan levels ($100–$5,499) are associated with increased likelihood of transferring institutions, while moderate loan levels ($5,500) correlate with reduced dropout risk compared to no loans. Interaction analyses indicate that federal loans uniquely and adversely impact Black students, who borrow higher loan amounts and experience higher dropout rates at certain loan levels. The study highlights the complexity of loan effects on student persistence and underscores the need for policies addressing racial disparities and supporting informed borrowing decisions early in college.