In the last six years, I’ve worked with more than 1,850 highly motivated low-income college students, helping them navigate from acceptance letter through diploma. Upon admission, most students I work with are woefully underprepared to understand financial aid, and few have effectively planned out how to pay for their educations. Most require ongoing counseling to effectively manage their financial aid packages throughout their years at college. I’ve seen students decline favorable subsidized fixed interest federal loans and take on higher variable interest, unsubsidized private loans simply because they didn’t know the difference. Still others planned to attend schools that were financially out of reach. A common plan to cover the cost gap? Taking out large yearly loans and working 25 or more hours of work a week—which will likely mean they take longer to graduate (a period during which they’ll incur even more debt) and mean that they face a higher risk of dropping out altogether.
The consequences of students’ lack of financial understanding have a ripple effect: Poor academic performance can cause them to lose financial aid altogether, while employment earnings can reduce the amount of aid they qualify for in the next academic year. As a result, many students will face severe debt upon graduation or, even worse, be saddled with unsecured debt and limited earning power because they dropped out with no degree: As of 2010, student loan debt had surpassed credit card debt.
But for all the recent media coverage of a possible education bubble, low-income students are well served by getting degrees: Lifetime earnings for adults with a bachelor’s degree are, on average, $2.1 million compared to $1.2 million for adults with only a high school diploma. And recent downturns have shown that, in a down economy, workers with college degrees remain employed at higher rates than those without. Whatever the hype, forgoing college to enter the workforce with a minimal skillset isn’t where the smart money lies. Yet at 23 percent, bachelor degree graduation rates for low-income students have remained virtually unchanged for decades.
So how do we keep these students in college and help them graduate? How do we ensure that students seeking to break out of poverty have the early support to set them on the right path?
FinAid.org provides a fantastic award letter comparison tool, and offers detailed explanations of financial aid terminology and several comprehensive calculators. And the Higher Education Opportunity Act of 2008 requirement that all colleges post net price calculators—tuition cost, minus grants, scholarships, etc.—on their websites by October 2011 is a start, but early reviews have found that their quality and usability is widely variable, and, more significantly, that many may provide insufficient security and privacy protections. These are steps in the right direction, but they fall short of what students really need.
We all know how challenging the financial aid system can be, and how negative the impact on persistence and graduation can be. Organizations focused on increasing college completion rates among low-income students must get serious about financial aid literacy. Just sending a check is not enough. At the Dell Scholars Program, we engage with scholarship recipients to help them understand financial aid management days after being selected. We direct them to existing self-help tools that can bring them up to speed quickly. But more importantly, we provide direct support and counseling on an ongoing basis. Our goal is not just to graduate our students, but to put them on a path out of poverty. Letting them sink under the weight of unnecessary debt is not an option.