Crucial Choices:

How Students’ Financial Decisions Affect Their Academic Success

Jacqueline E. KingOctober 31, 2005

Beginning Postsecondary Students National Longitudinal Study

Produced by the U.S. Department of Education

National Center for Education Statistics.

Nationally-representative sample of 9,000 1995-96

first-time students, followed up in 1998 and 2001.

Tracks persistence across institutions.

Income Groups Studied

17% D ependent(average incom e $12,782)

11% Independent w / D ependents(average incom e $8,902)

5% Independent w /o D ependents(not included)

32% Low -incom e(150% of poverty or less )

37% D ependent(average incom e $81,971)

4% Independent(not included)

41% M iddle- and U pper-Incom e(300% of poverty or m ore )

27% O ther(not included)

All B eginning Postsecondary S tudents

Background Characteristics

32% of beginning students 41% of beginning students

53% dependent 90% dependent

(34% independent w/ dependents)

60% female 50% female

48% non-white 20% non-white

44% age 20 or older 15% age 20 or older

35% married and/or w/ kids 7% married and/or w/kids

Low-income Middle- and Upper-income(up to 150% of poverty) (300% of poverty or more)

Academic Background

64% first-generation 33% first-generation

13% alternative diploma 3% alternative diploma

5% no high school diploma 2% no high school diploma

56 % delayed college entry 23% delayed college entry

Low-income Middle-and Upper-income(up to 150% of poverty) (300% of poverty or more)

Academic Preparation

51%

27%

22%

31%33%

36%

0%

10%

20%

30%

40%

50%

60%

Not rigorous Slightly rigorous Moderately orhighly rigorous

Low-income

Middle- and Upper-income

Institution Choices

50%

19%

10%

21%

42%

34%

20%

4%

0%

10%

20%

30%

40%

50%

60%

Public Two-year orLess

Public Four-year

PrivateFour-year

For-profitTwo-yearor Less

Low-income

Middle- and upper-income

Financing Choices

83%

63%

58%

46%

33%

62%

71%

36%

39%

27%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Applying for Aid

Working WhileEnrolled

Attending Part Time

Living at Home

Borrowing StudentLoans

Low-income Middle- and upper-income

Attendance Choices

Less than Full-time/Full-year Attendance77%

38% 35%

76%

63%

22%15%

71%

0%10%20%30%40%50%60%70%80%

Public Two-year or Less

Public Four-year

PrivateFour-year

For-profitTwo-year or

Less

Low-income

Middle- and Upper-income

Average Unmet Need

$2,704$3,151

$5,275 $5,193

$245$773

$1,026

$2,881

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Public Two-year or Less

Public Four-year

PrivateFour-year

For-profitTwo-year or

Less

Low-income

Middle- andUpper-income

Employment Choices

36%

13%

29%

23%

29%

19%

33%

19%

0%

5%

10%

15%

20%

25%

30%

35%

40%

No Work 1 to 14Hrs/wk

15 to 34Hrs/wk

35+ Hrs/wk

Low-income

Middle- andUpper-Income

75%

78%

77%

82%

88%

84%

86%

87%74%

85%

73%

90%

0% 20% 40% 60% 80% 100%

Start at Public 4-yr

Start at Private 4-yr

Attend Full-time/Full-year

Live On Campus

Work 1 to 14 Hrs/wk

Borrow, Work 1 to 14 Hrs/wk

Low-income Middle- and Upper-income

Choices and PersistenceLow-income (63%)

Middle- and Upper-income (75%)

Work and Borrowing Choices

Low-income Students

6%

18%

13%

37%

6%

21%Did not borrow or work

Did not borrow, worked 1 to 14 hours

Did not borrow, worked 15+ hours

Borrowed, did not work

Borrowed, worked 15+ hours

Borrowed, worked 1 to 14 hours

Work and Borrowing Choices

Middle- and Upper-income Students

8%

11%

10%

42%

8%

21%Did not borrow or work

Did not borrow, worked 1 to 14 hours

Did not borrow, worked 15+ hours

Borrowed, did not work

Borrowed, worked 15+ hours

Borrowed, worked 1 to 14 hours

Working: Penny Wise and Pound Foolish?

Dick works 25 hours per week, takes 5 years to graduate.

Year 5 Income (25 hrs/week @ $7.50 + summer work) = $10,800

Cost of an extra year in college (educational expenses only) = $5,000

Net gain = $5,800

Working: Penny Wise and Pound Foolish?

Jane borrows and works 15 hours per week, takes 4 years to graduate.

Year 5 Income as a graduate = $30,000

Total cost of loan

(borrowed $10k to work 15 hours per week at 7.25% interest with 10 year repayment) = $14,100

Net gain = $15,900

Worksheet for Dick

Hourly Wage $_____/hour

Earnings* 1,440 hrs x $____

Annual tuition + books & supplies

Net Gain (earnings less tuition, books and supplies)

* Reflects 25 hours/week for 32 weeks and 40 hours/week for 16 weeks.

Worksheet for Jane

Hourly wage $_____/hour

Loan amount* 320 hrs x $____/hr x 4 yrs =

Loan cost** $1,408 per $1,000

Starting Salary

Net Gain (salary less total loan cost)

* Reflects 10 hours/week for 32 week over 4 years.

** Based on a 7.25% interest rate and standard 10-year repayment plan.

ConclusionsFull-time attendance and part-time work are the

surest path to a degree.

Borrowing can be a productive way to finance full-

time attendance and part-time work.

Low-income students who borrow and work part time

persist at high rates.

Even middle-income students choose to work and

avoid student loans.

Recommendations

Integrate academic and financial advising.

Help students see the long-term academic and

financial implications of their choices.

Increase grant funding for low-income students--

especially who borrow and work.

Teach students about personal finance.

There is no one-size-fits-all solution.