October 2008 In a time of ever-rising college costs, financial aid is critical to increase college access and success. Federal, state, and institutional aid programs help to ensure that students can afford higher education regardless of economic background. Financial aid is most effective when students and families learn about it early enough to make the right choices and plans about high school coursework, family savings, work and earnings, and college options. This literature review explores the questions of how and when students and families learn about college costs and financial aid, and how the timing and substance of that information may impact college-going behavior. The research for this review was conducted in 2007 by graduate intern Deland Chan, who wrote it with Deborah Frankle Cochrane. Shannon Gallegos and Edie Irons helped create the finished product.
1) What do students and parents know about the cost of college and financial aid? a) Many parents and students lack adequate knowledge to accurately estimate college costs. i) Low-income and minority parents tend to overestimate the costs of attending college and are more likely to have inaccurate knowledge of actual college costs (Grodsky and Jones 2004; Horn, Chen, and Chapman 2003). ii) Generally, parents’ ability to estimate college costs accurately is positively correlated with income and negatively correlated with Latino and African-American ethnicities (Horn, Chen, and Chapman 2003). iii) High school students also overestimate college costs, and to a greater extent for two-year colleges than four-year colleges. Students typically estimate three times the mean tuition for two-year colleges and twice the tuition for four-year colleges (Long 2004; Horn, Chen, and Chapman 2003). iv) Students and parents with more information about college are much more likely to accurately predict college costs. Well-informed 11th graders overestimate actual two-year costs by 5 percent. Parents without basic college knowledge overestimate costs by 228 percent (Grodsky and Jones 2004; Goldrick-Rab 2006; Zarate and Pachon 2006).
Paving the Way: How Financial Aid Awareness Affects College Access and Success
b) Those who are eligible for financial aid are least likely to know about it, although awareness levels are low among students and parents at all income levels. i) Many parents have limited knowledge about financial aid. Sixty-two percent of all parents with children who are planning to attend college do not name grants as a source of financial aid, 58 percent do not name scholarships, and 64 percent do not name loans (Sallie Mae Fund and Harris Interactive 2003). ii) Low-income parents are more likely to lack sufficient information about financial aid. (1) Of parents with incomes under $25,000, three out of four can not identify scholarships, grants, or loans as sources of financial aid (Sallie Mae Fund and Harris Interactive 2003). (2) Sixty percent of parents with annual incomes under $50,000 say they need more information about how to pay for college, compared to only 37 percent of parents with annual incomes of $75,000 or more (Sallie Mae Fund and Harris Interactive 2003). iii) Many students have limited knowledge of financial aid: 65 percent of students who are planning to attend college do not name grants as a source of financial aid, 72 percent do not name scholarships, and 71 percent do not name loans (Sallie Mae Fund and Harris Interactive 2003). iv) Pell Grant recipients are often first-generation college students, and they lack essential information about financial aid and admissions information (McSwain 2008). v) Students whose parents earned at least a bachelor’s degree are more likely to report that the family is aware of and willing to pay college costs (Lippman et al. 2008). c) Knowledge of financial aid varies by race and ethnicity. i) Regardless of...