Crucial Choices:
How Students’ Financial
Decisions Affect Their
Academic Success
Jacqueline E. King
October 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
All Beginning Postsecondary Students
32% Low-income
(150% of poverty or less)
17% Dependent
(average income $12,782)
11% Independent w/ Dependents
(average income $8,902)
5% Independent w/o Dependents
(not included)
41% Middle- and Upper-Income
(300% of poverty or more)
37% Dependent
(average income $81,971)
27% Other
(not included)
4% Independent
(not included)
Background Characteristics
Low-income
(up to 150% of poverty)
Middle- and Upper-income
(300% of poverty or more)
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
Academic Background
Low-income
(up to 150% of poverty)
Middle-and Upper-income
(300% of poverty or more)
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
Academic Preparation
60%
51%
50%
40%
30%
31%
33%
36%
27%
22%
20%
Low-income
10%
0%
Not rigorous
Slightly rigorous
Moderately or
highly rigorous
Middle- and Upper-income
Institution Choices
60%
50%
40%
50%
42%
34%
30%
20%
19%
20%
21%
Low-income
10%
10%
4%
0%
Public Two- Public Fouryear or
year
Less
Private
Four-year
For-profit
Two-year
or Less
Middle- and upperincome
Financing Choices
Borrowing Student
Loans
27%
33%
39%
46%
Living at Home
36%
Attending Part Time
Working While
Enrolled
58%
71%
63%
62%
Applying for Aid
0%
83%
10% 20% 30% 40% 50% 60% 70% 80% 90%
Low-income
Middle- and upper-income
Attendance Choices
Less than Full-time/Full-year Attendance
80%
70%
60%
50%
40%
30%
20%
10%
0%
77%
76%
71%
63%
38%
22%
35%
15%
Low-income
Public Two- Public Fouryear or Less
year
Private
Four-year
For-profit
Two-year or
Less
Middle- and Upperincome
Average Unmet Need
$6,000
$5,275
$5,193
$5,000
$4,000
$3,000
$2,704
$3,151
$2,881
$2,000
$1,000
$245
$1,026
$773
Low-income
$0
Public Two- Public Fouryear or Less
year
Private
Four-year
For-profit
Two-year or
Less
Middle- and
Upper-income
Employment Choices
40%
36%
33%
29%
35%
30%
29%
25%
23%
19%
19%
20%
13%
15%
10%
Low-income
5%
0%
No Work
1 to 14
Hrs/wk
15 to 34
Hrs/wk
35+ Hrs/wk
Middle- and
Upper-Income
Choices and Persistence
Low-income (63%)
Middle- and Upperincome (75%)
90%
85%
Borrow, Work 1 to 14 Hrs/wk
Work 1 to 14 Hrs/wk
74%
87%
86%
77%
Live On Campus
84%
78%
Attend Full-time/Full-year
Start at Private 4-yr
73%
88%
82%
75%
Start at Public 4-yr
0%
20%
Low-income
40%
60%
80%
100%
Middle- and Upper-income
Work and Borrowing Choices
Low-income Students
6%
18%
Did not borrow or work
21%
6%
13%
Did not borrow, worked 1 to 14 hours
Did not borrow, worked 15+ hours
Borrowed, did not work
37%
Borrowed, worked 15+ hours
Borrowed, worked 1 to 14 hours
Work and Borrowing Choices
Middle- and Upper-income Students
8%
11%
Did not borrow or work
21%
8%
10%
Did not borrow, worked 1 to 14 hours
Did not borrow, worked 15+ hours
Borrowed, did not work
42%
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.
Conclusions
Full-time attendance and part-time work are the
surest path to a degree.
Borrowing can be a productive way to finance fulltime 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.