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The Misinformation About Financial Aid

The Misinformation About Financial Aid

Inaccurate perceptions about the cost of college often stand
in the way of economically disadvantaged students pursuing
a college degree.               

By Dina M. Horwedel

The escalating cost of college tuition seems to be on everyone’s minds these days. Particularly concerned are low-income students, who are often adverse to taking out loans for fear of jeopardizing their own as well as their families,’ financial situation.

Experts say economically disadvantaged students of all races are worse off if the only aid they receive come in the form of student loans. Many students graduate only to face immediate and staggering loan debt. According to a study by the Project on Student Debt, high-level borrowing to fund higher education has grown much faster than low-level, or supplementary, borrowing.

But one huge barrier preventing low-income students from attending college is misinformation. The Tómas Rivera Policy Institute (TRPI) at the University of Southern California recently surveyed 400 Hispanic Californians between the ages of 18 and 24 about their perceptions of college financial aid. Thirty-eight percent of the respondents felt that college costs outweighed its benefits. But only a few of the respondents could accurately estimate the cost of attending either the University of California or California State University.

That finding illustrates one reason that Hispanic students are still under-represented in higher education, but the point applies across racial and ethnic lines: Traditional college-age people generally perceive college costs to be higher than they really are.

Dr. Estela Zarate, research director for TRPI, says there needs to be a better effort at clearing up misperceptions about college costs. The institute is working to educate Hispanics about state and federal grant and loan programs, so students don’t inadvertently forfeit the opportunity to get a higher education. A separate TRPI study, “Perceptions of College Financial Aid Among California Latino Youth,” found that many Hispanics mistakenly thought U.S. citizenship was a requirement for financial aid.

“Many students are from mixed immigration status households,” Zarate says, pointing out that permanent residents can receive financial aid. “What we found out is that most information about college prep is relegated to and geared for the select few at the top of the class and those who have access to the information. Most high schools are merely geared towards the completion of high school.

“There is also the assumption that parents can contribute the bulk of the money.  All of that is problematic. Most of us argue that we need to integrate going to college as an expectation for everyone in high school,” Zarate says.

The report found that while many Hispanics recognize the economic benefit of a college degree, they are unwilling to risk incurring debt while pursuing higher education. The feeling is more pronounced for Hispanics who contribute financially
to a household.

To Borrow or Not to Borrow
A survey by the Project on Student Debt, titled “Looking for Relief: Americans’ Views on College Costs and Student Debt,” conducted in March 2006 has shown ethnic and racial differences in student attitudes toward loans. The study examined student responses on a loan question included in the Free Application for Federal Student Aid. Only 15 percent of the White students declined loans, compared to 28 percent of Blacks and 27 percent of Hispanics. Seventy-seven percent of Blacks and 59 percent of all adults say students today have too much loan debt, and 84 percent of Blacks and 66 percent of all adults and postsecondary students completing the FAFSA surveyed say repaying that debt is too hard. 

First-generation college student Robert Gibson, who recently graduated from the University of San Francisco, sums up the feeling of many college graduates when it comes to their ability to repay their loans: “I’ll take my student loans to my grave,” he says.

According to TRPI’s Zarate, that kind of outlook is termed “loan aversion.” Because many Hispanics overestimate the monetary costs of a college education, they are less willing to turn to loans to finance their education, she says.

“When you begin with the premise that you are taking out a loan for $40,000 a year for four years, that’s $120,000,” she says. Such a large figure frightens away many would-be students, who don’t realize that actual college costs are almost always much cheaper.

Dr. Gumecindo Salas, vice president of government affairs for the Hispanic Association of Colleges and Universities, says Hispanics often prefer grants rather than loans because grants are less of a financial burden. HACU is currently lobbying the federal government to increase the dollar amounts of Pell Grants awarded. The U.S. Congress has debated that option, but has also considered boosting the amount of student loans instead. Salas opposes that plan, saying “loans have too much of a detrimental impact on students and families.”

New to the scene is the Academic Competitiveness Grant, which provides up to $750 for the first year of undergraduate study and $1,300 for the second year. To be eligible for the merit-based grants, students must be U.S. citizens who have completed an academically rigorous high school curriculum. Current college students must have maintained a 3.0 GPA in their freshman year to be eligible for the second-year grant.

Loans: Are They Worth It?
Experts at Consumer Reports magazine say that, before taking out college loans, students should perform a cost-benefit analysis to be sure that the graduate education will indeed pay off. 

Gibson, for example, says he is making less money in his chosen career path of higher education than he was in his former position as a paralegal.

“It’s hard to gauge [whether it was cost effective to get a master’s degree] because salaries are low in higher education initially, but there may be some potential if I can climb the ladder to an assistant or director-level job,” he says. “In a job market glutted with applicants, the master’s degree gave me the edge. But in terms of earnings, it wasn’t a cost-effective move. If I had parlayed my degree into business organizational development, then, yes, it definitely would have been worth it.”

TRPI’s study concludes that Hispanic youth could be motivated not only by the economic benefits of a college education, but also by its intangible perks, including increased social status.

Financial aid experts say that for all students, especially those who are the first in their family to attend college, college planning should start sooner rather than later. The challenge is getting students and parents to think about college at all.

According to the TRPI study, Hispanic students often take the lead role in applying for financial aid, which is contrary to the general impression that parents lead the search for funding. Zarate says financial aid applications should account for that reality when they disseminate information.

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