The role of financial knowledge in college dropout rates is a complex and multifaceted issue that is of growing concern. While many factors contribute to a student's decision to drop out of college, financial considerations often have a significant influence.
For many students, particularly those from low-income backgrounds, the cost of higher education can be a big barrier to achieving their academic and professional goals.
Financial stress, burdens of student debt, and the need to work while in school can make it difficult for students to succeed academically and persist through to graduation.
This is a growing concern for financial institutions as college graduation rates are declining and dropout rates are continuing to rise.1
In this article, we will explore the complex relationship between financial knowledge and college dropout rates, examining the various ways in which financial considerations can impact a student's decision to drop out, and discuss potential solutions that institutions can implement to mitigate the problem.
The Relationship Between Financial Knowledge and Dropouts
The relationship between college dropouts and financial knowledge is well-documented, and various studies have shown that students who have a higher level of financial literacy are more likely to follow-through with their education and graduate.2
Almost 60% of students surveyed expressed significant concern about their ability to pay for their education.3 On top of this, 38% of students drop out due to finances, so it is vitally important to increase financial literacy for students and help them navigate these obstacles.
Why Financial Knowledge Is Important
Financial knowledge is a crucial, yet often overlooked area when it comes to educating students. It is typically an area with some of the biggest obstacles for students to overcome, yet where the least amount of support is offered.
Here are a few key reasons why financial knowledge is so important for students.
Informed Decisions
One of the main reasons why financial literacy is so important is that it helps students make informed decisions about paying for college.
According to the National Center for Education Statistics, the average cost of tuition and fees for the 2020-2021 academic year was $26,000 for private four-year institutions and $10,000 for public four-year institutions.4
For many students, particularly those from low-income backgrounds, these costs can be prohibitively high, and they may be forced to take on large amounts of debt in order to pay for their education.
However, students who have a higher level of financial literacy are better equipped to understand the costs of higher education and the implications of taking on student debt, which can help them make more informed decisions about their finances and their education.
Financial Planning
Another reason why financial literacy is so important is that it can help students manage their money while in college, which can be crucial for their academic success.
According to the Institute for Higher Education Policy, students who work while in college are more likely to drop out than those who do not.5 This is because working while in college can be time-consuming and can make it more difficult to succeed academically.
However, students who have a higher level of financial literacy are better equipped to manage their finances, which can help them avoid the need to work while in college, and can increase their chances of succeeding academically.
Debt Management
Another way in which financial considerations impact college dropout rates is through the overwhelming burden of student debt.
Many students, particularly low-income students and students from underrepresented groups, struggle to afford the rising costs of higher education.6
These students may take on large amounts of debt to pay for their education, only to find that they are unable to repay the loans after graduation. This can lead to a cycle of debt and financial stress that can make it difficult for students to continue their education and can ultimately lead to them dropping out.
How To Solve This Problem
There are several ways that universities and financial aid directors can mitigate this problem, and help to improve student success.6
- Increased Education: By providing better financial education and counseling to students and their families, advisors can help students understand the costs of higher education and the implications of taking on student debt. Universities can also focus on following the best practices to develop a campus-wide financial literacy program to reach as many students as possible.
- Availability of Grants and Scholarships: Financial aid directors can also work to increase the availability of grants and scholarships, which do not need to be repaid, and can help to reduce the burden of student debt and increase student financial wellness.
- Targeted Support: Additionally, schools can also identify students from low-income backgrounds who are at risk of dropping out and offer them targeted support such as additional counseling, financial education, and mentoring.
Choose The Right Program To Help
One of the best things universities and colleges can do to help put this all into action and have an impact on their students is to find the right support.
iGrad focuses on just that. As leading experts in the field of financial education and increasing financial wellness, iGrad offers award-winning financial literacy solutions for higher ed institutions.
The tools are in your hands, now let’s get them into the hands of the students.
1 - https://educationdata.org/college-dropout-rates
2 - https://digitalcommons.wku.edu/diss/140
3 - https://cssl.osu.edu/posts/documents/nsfws-key-findings-report.pdf
4 - https://nces.ed.gov/programs/coe/indicator/cua/undergrad-costs#:~:text=For%20example%2C%20in%202020%E2%80%9321,and%20public%20institutions%20(%2425%2C700)
5 - https://www.cnbc.com/2019/10/24/working-in-college-can-hurt-low-income-students-more-than-help.html
6 - https://digitalcommons.lsu.edu/cgi/viewcontent.cgi?article=3262&context=gradschool_dissertations
