The last decade has witnessed a shift in student funding from grants to loans and a persistent gap in college educational attainment between students from different socioeconomic and racial/ethnic backgrounds. Although there have been some important studies on the effects of financial aid on student dropout behavior in general, research focusing on understanding the differences in dropout risks among different student groups and the role that different types and amounts of aid play in reducing these gaps is very limited. The purpose of this study is to remedy the limitations in the literature by examining how changes in the amount of financial aid are differentially related to the dropout risks of students from different income and racial/ethnic backgrounds over time.;Using an event history analysis on a nationally representative sample from the longitudinal survey of Beginning Postsecondary Students, this study examined how students of different backgrounds responded to financial aid in their college career between year 1996 and 2001. The analyses were conducted in a three-step approach, including the baseline modeling, sub-group analyses, and tests for interaction effects. The results indicated that (1) dropout risk gaps by income and race/ethnicity have still persisted in recent years in American higher education; (2) the role that financial aid plays in the student dropout process is more complex than the one portrayed by the traditional approach ignoring the population variability. This study confirms the hypotheses that the impact of financial aid varies by student backgrounds. Students' levels of sensitivity to net tuition changes appear to be higher for low-income and minority students than for their higher-income and White counterparts. The findings from this study have implications for institutional management, public policy making, and further research on college student dropout.
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