For many low-income students, the only way to pay for school is to take on a significant amount of debt. While some are able to get into schools that fully fund their financial need, others face large gaps in funding which they require student loans to cover.

Many believe that it’s this debt or a fear of debt that is leading so many low-income students to drop out of college. In fact, Demos recently analyzed data from the U.S. Department of Education surveys and the Federal Reserve Survey of Consumer Finance to look at drop out rates. They found that 38% of low-income borrowers dropped out of college. That's compared to less than one quarter of students from higher income groups.

The study also found that low-income students that receive Pell Grants and complete their degrees graduate with significantly more debt than non-Pell Grant recipients. Demos found that 84% of Pell Grant recipients have debt upon graduation compared to 46% of non-Pell Grant recipients.

Unequal Access to Loans

While most low-income students are required to borrow money in order to complete their degrees, they can’t always access those funds. Many low-income students max out the funds that they’re entitled to borrow under the federal student loan program and they don’t have the same access to funds that their higher income peers have.

Those from middle-class or upper-middle class backgrounds can more easily get financing from family members or get family members to co-sign student private student loans. Low-income students are often not able to get help from family members and their family members are less likely to qualify to co-sign their student loans.

Given that 90% of all private student loans require a co-signer, that makes accessing cash much more difficult for low-income students. While it makes sense that lenders and banks don't feel comfortable lending to undergraduates since most have no credit history and don’t make enough to qualify on their own, that makes the higher education playing field unequal for low-income families.

Partly because of this lack of access to funds, that means that a low-income student’s funding gap can sometimes be larger than a middle-class student’s depending on the school that they're attending and the financial aid that it offers. While things like Pell Grant, state grants, scholarships, and financial aid offered by the school can sometimes make up the difference - it doesn't always.

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More Drop Outs

Low-income students are thus often put in a situation where they need to borrow more in order to finish their degrees, but they can’t access the money to do so. While they can and do work in order to supplement their funds – it often isn’t enough. The struggle to pay for their expenses without the same access to money as their peers adds financial stress that could make low-income students more likely to drop out.

Unfortunately, they often drop out having already incurred significant amounts of debt which makes life even more difficult for them than if they hadn’t gone to college at all. Not only do they have to repay their student loan debt after dropping out, but they don't have the advantage of being able to get a job commensurate with the degree that they were trying to pursue.

For these reasons, something must be done in order to alleviate the unfair burden that low-income students face.

The Answer is More Grants and Loans

That's why federal loans should offer more generous grants to low-income students. Expanding the Pell Grant program would provide low-income students with the funding that they need to succeed.

If that cannot be done, it could help to increase the amount that low-income students could qualify for under the federal student aid program. Currently, undergraduates can borrow $31,000 over the course of their four-year degree, but there are also caps on funding based on the year they’re in. In their first year, they can borrow just $5,500, in their second year up to $6,500, and in their third, fourth, and fifth years – they can borrow up to $7,500.

For some students, that’s not enough to pay for all the costs they incur and allowing low-income students access to more money could help some of them continue pursuing their degrees. While other students can turn to private student loans to make up the gap, that isn’t likely the case for low-income students and it’s important that the federal student aid program take this into account.

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