As tuitions rise and the cost of living goes up, expanding access to higher education has been a priority for many Americans. The impact of a 4-year degree extends beyond the acquisition of knowledge. A review of studies conducted by the National Bureau of Economic Research (NBER) stated that not only do individuals with a 4 year degree earn more than those with a high school diploma, they are more likely to remain employed.
It is with this in mind that private and public efforts have been set up to ensure all levels of society can attain a college education. Programs like the Federal Pell Grant are in place to award students that have exhibited the greatest financial need, as access to higher education has historically been limited for lower-income families.
In the 2013-2014 Federal Pell Grant Program End-of-Year Report, the U.S. Department of Education revealed that $31.4 Billion was awarded to students who showed financial need. The average Pell Grant was $3,634 per student, with the minimum Pell Grant awarded at $582 and the maximum at $5,645.
Yet, as noted by Sarah Butrymowicz in her article “Billions in Pell Grants go to students who never graduate” for PBS Newshour, “In a recent estimate of Pell Grant recipients in the U.S., only 39 percent of the 1.7 million students in its sample earned a bachelor’s degree in six years.”
Minority students receive more of these needbased grants because minority students are more likely to be low income. Of students who submitted the Free Application for Federal Student Aid (FAFSA), 83.0% of African American students, 79.6% of Latino American students and 69.5% of Asian American students are lowincome, compared with only 55.3% of Caucasian students. For the 2013-2014 school year, 83.7% of Pell Grant recipients came from households with an income of less than $40,000. 16.4% came from households earning between $20,000-$30,000.
According to a study funded by the Bill and Melinda Gates Foundation called “With Their Whole Lives Ahead of Them,” the leading cause of dropping out was being over-extended with work, with 71% of students saying they left so they could make more money. Within the same report, those who left school were more likely to have been working to support themselves in school as they had no support from family and other relatives.
“Every year, thousands of students drop out of school for financial reasons,” says Kris Alban, VP of iGrad. “It would cost schools less money to implement a financial literacy program to help retain these students than to recruit and replace new ones.”
Click Here to Check Out a Compilation of 33 Financial Literacy Studies
In her article “Financial Literacy and Retention,” Ruth L. Adams discusses the cost of losing students after 1 semester. At $200/credit, with 12 credits in a semester, a freshman class of of 1,000 full time students brings in $4.8 million in 1 year. If 30% of these students drop out their first year, with 100 of them citing financial reasons, then in 3 years an institution sees a loss of $1.4 million– roughly 1,000% the cost of implementing a financial literacy program.
With a proper financial literacy education, students would be able to take advantage of their resources without having to take out as many loans. For working students, if they were educated in saving habits and how to select debt that best fit their needs, they would be able to work and stay in school. As reported by Annamaria Lusardi and Peter Tufano in their research paper entitled “Debt Literacy, Financial Experiences, and Overindebtedness,”: minorities (along with women and the elderly) showcased higher rates of debt illiteracy.
The students with the greatest need, who are given a grant based on this need, are finding it hard to complete their education as they do not have the resources nor the financial experience to make due with what they do have. Paying tuition and enrollment fees is only the beginning of their journey. If equipped with the tools and the knowledge to make sound financial decisions, institutions can help in ensuring that the students that would benefit the most from a college education will have the support systems to complete it.
