ERIC Identifier: ED460243
Publication Date: 2001-12-00
Author: Nora, Amaury
Source: ERIC Clearinghouse on Urban
Education New York NY.
How Minority Students Finance Their Higher Education. ERIC
All types of financial aid have been shown to have a positive influence on
college enrollment, regardless of the students race or ethnicity (St. John &
Noell, 1989). Today, financial aid is central to the successful enrollment and
retention of low-income students. For the majority of these students (90
percent), receiving financial assistance is critical in paying for college.
Moreover, the availability of funds to meet tuition and other college-going
costs not only impacts students decisions on whether to attend college, but it
also greatly influences their choice of college. Surveys indicate that student
loans, specifically, play an enormous role in all student decisions regarding
college (e.g., Baum & Saunders, 1998). For minority students, whose
financial aid does not meet college costs, the difference can be problematic.
Having sufficient funds enhances college students academic performance,
facilitates their social integration on campus, and increases their chances of
persistence to graduation (Nora & Cabrera, 1996).
This digest examines the various financial sources minority students use to
meet the costs of a higher education, some of which were created with the
specific goal of promoting their college attendance. It concludes with
recommendations for public policy to increase the availability of aid for
college attendance based on student experiences with existing practices.
SOURCES OF FINANCIAL AID
Federal Student Loans. It has been
estimated that more than 50 percent of students earning degrees have had their
education at least partially financed through Federal student loans (American
Council on Education, 1997). That figure has been confirmed in a study reporting
rapidly escalating financial aid awards as the major source of financial
assistance, which also confirms a strategy of emphasizing grants in the early
year packages and shifting to loans in the later years (Fenske, Porter, &
DuBrock, 2000). Among borrowers, students (mostly minorities) attending
community colleges and other two- and three-year colleges have relied heavily on
Federal Stafford loan programs, available to those from lower-income families.
Many of these students are also able to meet their costs through Federal Pell
grants and some additional resources (e.g., family savings, current income).
Pell grants are a resource for students whose annual family income is no more
than $40,000 enrolled in, or accepted for enrollment in a college. Student loans
are the most common source of aid for low-income students, as 73 percent
received Federal student loans, and 35 percent had loans from other sources
(O'Brien & Shedd, 2001).
Programs and Grants
A study conducted by The Institute for Higher Education Policy on the impact
of pre-college programs on student success found that for those who participated
in pre-college programs such as the Federal TRIO programs or
institution-sponsored programs the impact was positive with regard to several
performance indicators (O'Brien & Shedd, 2001). Minority students and Pell
Grant recipients, both largely low income, had some of the highest participation
rates in pre-college programs. Study findings were consistent with other
national data indicating that 49 percent of low-income students nationwide
receive a Pell Grant. Approximately 66 percent of financial aid recipients
reported that their financial aid met the cost of attending college. However,
for those whose financial aid did not meet the costs of attending college, the
financial gap was a hardship.
As of October 1999, 20 states offered a new mechanism for financing a
students college education: College Prepaid Plans (Olivas, 1999). These programs
work on a very straightforward principle: parents place a lump sum in a contract
(or make monthly payments) that guarantees the money will be sufficient for an
equivalent of tuition and fees in a set period of time in the future. Some
states have now also established similar programs--savings program trust funds
(SPTF)--which have gained tax exempt status in recent years and make it possible
for individuals to invest in a state-operated investment fund for college
tuition and related expenses such as room and board. The funds permit parents to
defer the gains made from their investments and to delay and transfer the
earnings to the beneficiary children, who are taxed at lower rates than are
Olivas (1999) underscores the fact that it is very unlikely that middle- and
low-income families will profit from such ventures, however. Even as early as
1990 evidence indicated that not all sectors of society (and specifically those
most in need of financial assistance) were benefiting from prepaid plans or
savings program trust funds; it was, in fact, the richest population with
children that purchased the majority of monthly payment option contracts
One of the most disturbing means of paying for college expenses, from tuition
to books to meals, is through student credit cards (e.g., Blair, 1997). The
abundance of credit cards offered to all college students, along with the ease
with which they can be acquired, make it possible for today's college students
to have more opportunities for making credit purchases than any prior generation
of students. Included in the lure to attract students to credit card use are
minorities and low-income students. Evidence that credit card usage is a means
for them to meet college-related finances is seen in O'Brien and Shedds (2001)
study which found that low-income college students in New England not only used
money earned from working or savings to help them pay for college, but that 50
percent of those students received money from their parents and nearly 25
percent used credit cards.
IMPLICATIONS FOR FEDERAL POLICY ON HIGHER
Historically, Federal policy related to the goals and financing of
higher education have been affected by political cycles that exist for various
public policy issues--cycles which alternate between concerns to improve quality
and concerns to improve access, according to Nora and Horvaths 1989 review of
the impact of financial assistance on minority enrollments and persistence.
Further, Campaigne and Hossler (1998), in their report on the impact of
financial aid programs on student achievement and success, found that financial
aid policies have not been judicious or focused, and that no clear goals were
evident from the decisions, although [i]t would be appealing to report that
changes in federal financial aid policy have been driven by data, rational
planning, and clear policy objectives.
It is difficult to ascertain the influence of Federal student aid programs,
and student loan programs in particular, for numerous reasons. Campaigne and
Hossler (1998) concluded that the consequences of economic, social, and public
policy trends differentially affect students and families from different income
groups. To effectively study the effects of Federal loans on student access,
institutional choice, and persistence, perceptions and subjectivity cannot be
disregarded. For some families, and college students, the impact of cost and
subsidies is simply more important than for others.
Given the various patterns of financing a college degree as shown above,
policy recommendations, grounded in current policy and data, should reflect the
following (e.g., Wolanin, 2001):
* Increased stress on grant aid resources at Federal, state, and
institutional levels that lower dependence on loans for low-income students.
* Growth in work-study programs that help integrate working students into the
institution and help them finance their education.
* Reassurance to students regarding the availability and timing of student
aid to lessen the potential negative impact of paying for an education on their
ability to persist in higher education.
* Targeted financial aid programs for students whose need is not met by
current financial aid programs, specifically part-time and minority students.
* Continued state support through need-based grants.
Efforts to address the issue of subsidizing the costs of attaining a higher
education degree have overlapped with important political concepts of the 1980s
and 1990s that focused on accountability and efficiency. The result has been a
shift in the old argument over who benefits from a higher education: the
individual or society. Federal grants, more indicative of the belief that
society benefits, have been reduced substantially. They were replaced by an
emphasis on Federal loans, tax exemptions, and prepaid college plans, which
place the burden on the individual who is to benefit from a college degree. One
outcome of this shift has been an increase in student indebtedness and a
desperate search for alternative means of financing a college education, namely,
credit card usage. The upshot has been that graduates from low-income families,
and students who withdraw from college, find themselves in debt not only to the
Federal government but also to private credit card companies. While those
fortunate enough to earn a college degree have letters following their names,
repayment of huge debts incurred while in college almost totally negates any
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