Does Money Matter?

By Watson Scott SwailPresident & Senior Research Scholar, Educational Policy Institute

Earlier this morning, reported on a new study released by “NBER” (the National Bureau of Economic Research) on the importance of money in college access and success. The study looked at the relative importance of finances in the persistence of students in higher education, especially for low-income students. So you don’t have to wait, the study concluded that finances weren’t nearly as critical as some other, non-financial “constraints,” such as academic prowess, homesickness, don’t like the school, etc.

I, too, believe that while finances are a huge barrier for some students, they aren’t always as huge as issue as we would like to believe. “Finance” is an easy “out” for students and families because then it isn’t about them. It becomes more an issue of where, not if (and that is a serious problem to consider for students).

Now, this stated, I do worry about studies like these because they aren’t the best representation of the college arena. This NBER report was conducted at Berea College in Kentucky. Berea is somewhat infamous because of its “no tuition” policy. True, all students are required to complete a “work study” program of 10-15 hours a week, but still, this is an impressive statement of policy by the college. Berea is also a small liberal arts college that is selective in its admissions.

In their findings, only 18 percent of students expected to encounter fiscal “constraints” during their college experience, and, in student surveys, most students who left Berea without a degree (that is, dropped out) did not leave because of finances. With this, the authors concluded that other, non-financial factors were the true cause of departure.

But I again go back to the generalization of this study. Being at Berea, which has a fee policy that I believe no other institution in North America parallels, the landscape is foreign to anything else. No fees, and also subsidized housing, means that finances should pay a much smaller role at this institution than at others. And they did.

So what does this mean for the larger question of how much finance matters in postsecondary success? Unfortunately this always depends greatly on the context of the situation, including family income to the cost of the institution. Most of us researchers believe that a major problem of college costs (or prices) is not being able to afford college, but being afraid of not being able to afford college. Because of this believe, we feel that many students self-select themselves out of college early on in their secondary schooling. If you think you can’t afford it, why try?

But we still no little about this phenomenon, even though people like me think that we do. The evidence is all over the place in terms of the role of finances. Clearly, finances matter, and to some, matter greatly. Low-income students must certainly have the greatest burden to carry, but federal financial aid, over time, has done relatively well keeping up with college tuition increases. Not well enough, but better than expected. The new increase in Pell Grants is welcomed and hopefully will make this situation better. Those students in the middle income stratum perhaps face a more difficult hurdle. The best they have is subsidized loans, if they can get them, and tax breaks from the federal government.

The paper concludes that “further research” needs to be conducted. This is true. I hope for a follow-up at an institution that matters. But we certainly do understand in this day and age more than at any other time that other factors weigh considerably on the students ability to persist to degree.

Although I agree with some of their conclusions, I do hope that policymakers will refuse to use this study as an excuse to drop the ball on financial aid.

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