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Effects of the high school environment, part-time university instructors, and classroom ethnic/racial diversity on first-year student preparation and enrollment persistence are estimated via hierarchical linear and logistic regression. After controlling for student socio-demographic characteristics and motivation to enter college, high school attributes bear little relevance to level of academic preparation at the start of the first year of study. In contrast, academic performance of low-income students at the end of the first year is negatively associated with several features of the high school environment. There is little evidence that student persistence is negatively affected by exposure to part-time instructors during the first year in college. Ethnic/racial diversity in the classroom appears to slightly enhance persistence of non-Asian minority students, but shows no positive relationship with cognitive growth. Unmet financial need marginally increases the dropout risk of students taking greater course loads net of socio-demographic background, academic preparation, first-year grades, on-campus residency, and type of aid received. Results are based on institutional matriculation records of 2,800 first-year students at a moderately selective public university and official high school accountability reports collected by the state's department of education. (Contains 8 tables and 6 footnotes.)

The greatest limitation in establishing causality in observational studies on the effect of financial aid is the presence of endogeneity or selection bias associated with aid status. To control for this statistical confoundedness that besets the research corpus to date, this study estimates the effect of financial aid on freshmen retention at a moderately selective, public university using propensity score-matching in multi-stage regression analyses. The correlational pattern that emerged from twenty-four logit models suggests higher-income students accrue a retention benefit from financial aid, unlike low-income students, net of first-year academic experience and type and amount of aid received. Conversely, retention of low-income freshmen is more likely due to academic performance compared to those from high-income background. Findings on the effect of aid are consistent with the economics of moral hazard and unobservable behavior. (Contains 6 footnotes, 8 tables, and 2 figures.)