• Profile of Low-Income Undergraduates
• Financial Need
• Financial Aid
• Closing the Gap
• Low-Income Status and Persistence

For the purposes of this report, low-income students were defined as those whose family income was below 125 percent of the federally established poverty level for their family size. Because the prices students pay and the financing strategies they adopt vary substantially with institutional level and control, students at public 4-year, private not-for-profit 4-year, and public 2-year institutions are examined separately. Within institution type, dependents, independents without dependents, and independents with dependents are also considered separately because their financial obligations are quite different, and they are treated differently by the financial aid system.

The analysis relies primarily on the National Center for Education Statistics (NCES) 1995-96 National Postsecondary Student Aid Study (NPSAS:1996), but also uses selected data from NPSAS:1993 for comparison and data from the 1996 Beginning Postsecondary Students Longitudinal Study (BPS:1996/1998) to examine persistence.

In 1995-96, 26 percent of all undergraduates were low income. At private not-for-profit 4-year, public 4-year, and public 2-year institutions, the proportion of students who were low income ranged from 21 to 26 percent. A much greater proportion of students at private for-profit institutions were low income (48 percent), but relatively few (about 5 percent of all undergraduates) attended this type of institution.

About one-half (49 percent) of all undergraduates were dependents, and a relatively small proportion were from low-income families (figure A). The other half of the undergraduate population was about evenly divided between independents without and with dependents of their own. (Spouses are not considered dependents.) Independent students were more likely than dependents to be low income because their parents' financial circumstances are not considered for aid purposes.

Overall, 17 percent of dependent undergraduates were defined as low income. Certain groups were particularly likely to be in this category, including minorities and students whose parents had not gone to college. As parents' education increased, the percentage who were low income decreased (from 55 percent when both parents had less than a high school diploma to 23 percent when at least one parent had finished high school to 12 percent when at least one parent had attended college).

Independents without dependents were almost twice as likely as dependents to be low income (31 percent were in this category). Rather than reflecting a disadvantaged background (there was no strong relationship between parents' education and students' low-income status), low-income status was closely related to marital status, age, and employment and enrollment status. Independents without dependents were much more likely to be low income if they were single rather than married. The likelihood of being low income declined with age, in part because older students are more likely to be married and have greater earning potential. Students who did not work or considered themselves primarily students were more likely to be low income than those who considered themselves primarily employees. About half of those who enrolled full time, full year (51 percent) were low income.

Independents with dependents include single or married students with children or other dependents. As indicated earlier, spouses are not considered dependents; their incomes are included in calculating family income. This group was

Figure A.—Percentage distribution of undergraduates by income and dependency status: 1995-96

the most likely to be low income (40 percent). As was true for independents without dependents, low-income status was related to marital status, age, and primary role while enrolled (student or employee). Fifty-six percent of single parents were low income; the younger the students, the more likely they were to be low income; and they were more likely to be low income if they did not work or if they worked but considered themselves primarily students.

Financial need is the difference between the price of attending a postsecondary institution (the "student budget") and what the student is expected to pay based on the family's financial circumstances. Compared with the average prices of attending the different types of institutions, the average expected family contributions (EFCs) for low-income students were relatively small (table A). Consequently, virtually all low-income undergraduates attending full time, full year had financial need (that is, the student budget minus EFC was greater than zero). The amounts of financial need were substantial at all types of institutions, ranging from about $5,800 to $16,700, varying with dependency status and type of institution (table A).

Most low-income students attending full time, full year (86 percent) received some financial aid, and the average amount received by low-income students (calculated including those with no aid) was about $6,100. Most (81 percent) received grants, which averaged $3,900 for those who received them. Loans were an important source of aid as well, with 51 percent borrowing. The average loan for those who borrowed was $4,700.

Most borrowers (66 percent) did not reach the maximum permitted under the Stafford loan program. As did financial need, aid patterns for full-time, full-year low-income students varied substantially by type of institution and dependency status.

Aided low-income students attending full time, full year had about 60 percent of their budgets covered by aid. About 60 percent of their aid was in the form of grants and 32 percent was in the form of loans; the rest came from work-study and "other" types of aid. Again, these proportions varied considerably by dependency status and institution type.

The net price that low-income students pay for their education is the difference between the student budget and financial aid. This represents the amount that students must come up with to pay for their education. Even for low-income students attending full time, full year, a substantial part of this gap is met by student earnings while enrolled (table A). These earnings do not cover the net price, however. For dependent students, the amounts left after taking into account student earnings appear to be considerably higher than their families could afford to cover (and that data on parent contributions suggest that they are covering), especially at private not-for-profit 4-year institutions. For independents without dependents, earnings cover most of the net price at public 4-year institutions, but the gaps at private not-for-profit 4-year institutions and public 2-year institutions are large. The pattern is similar for independents with dependents.

Despite these apparent gaps between the net price of attending and students' financial resources, the students are enrolled. How do they manage? One possibility is that they are surviving on a lower budget than estimated by their institutions. Other possibilities are that students are actually earning more than estimated (students often have numerous short-term jobs), are able to save from summer earnings, or have savings accumulated before they enrolled. Yet another is that they have received more than estimated from their parents. Or, they may be borrowing from sources other than student loan programs.

The actual contributions of parents and other family members are difficult to determine because families typically do not keep detailed records and this type of information is difficult to recall many months later in a telephone interview. In addition to the amounts reported as allowances, about one-third of all low-income students attending full time, full year reported that their parents paid for all or part of their tuition, housing, meals, or books, but we do not know how much this amounts to. Low-income independent students do not necessarily come from low-income backgrounds, so their parents may have substantial resources.

Many worry that financial problems may force low-income students to drop out or interrupt their education. Persistence is affected by a variety of factors other than income. In order to determine whether persistence is associated with low-income status independently of these other factors, a multivariate analysis was conducted. The results show that low-income students who began their postsecondary education in 1995-96 were less likely than their not-low-income counterparts to have earned a degree or certificate or still be enrolled in 1998. This was true even after controlling for student background (gender, race/ethnicity, and parents' education) and other factors likely to affect persistence (dependency status, institution type, enrollment delay after high school, enrollment status, amount worked, borrowing, and assistance from parents).

Table A.—Average student budget, EFC, financial need, total aid, unmet need, net price, and earnings for low-income undergraduates enrolled full time, full year, by type of institution and dependency status: 1995-96