Using data from two freshmen cohorts at a public research university (N = 3730), this study examines the relationship between loan aid and second-year enrollment persistence. Applying a counterfactual analytical framework that relies on propensity score (PS) weighting and matching to address selection bias associated with treatment status, the study estimates that loan aid exerts a significant negative effect on persistence for students from low-income background (i.e., Pell eligible), and those taking up high amounts of loans in order to meet total cost of attendance, including students who exhausted the available amount of subsidized loan aid. However, no significant incremental effect associated with unsubsidized loan aid, net of subsidized loan aid, could be detected. The estimated effect of loan aid on persistence controls for first-year academic experience and takes into account 26 factors related to loan selection and persistence in order to match students with loan aid to a counterfactual case in covariate adjusted regression. Comparison with results from non-matched-sample analysis suggests selection bias may mask the negative effect of loans detected with matched-sample estimation. Validity of covariates determining the loan selection process and criteria for acceptable balance in the matched data are discussed, and implications for future research are addressed.