In a recent post at CCAP, “The Academic GiGo Principle,” Rich Vedder discusses the idea that if the government subsidizes students more, they will put forth less effort to complete their courses and get on with life.
An August 2004 research paper (“The Incentive Effects of Higher Education Subsidies on Student Effort” by Aysegul Sahin) published by the Federal Reserve Bank of New York came to that conclusion as well. You can read the paper here.