From Academic Advising Today, June 2010
Joe Murray, Chair, First Generation College Student Advising Interest Group
Hannah Yang, Research Associate
“Juan” is a first-term freshman who made an academic advising appointment to discuss needed courses for next term. When he arrives for the appointment, he has something else on his mind – his financial situation. Juan received grants and loans for college, but still has a $5,000 gap of unmet need and a $500 credit card debt. Juan has campus work-study hours he fulfills weekly, but he is worried about paying for next year. He has considered “stopping out” to work full-time until he can earn enough money to pay for another term. Juan is also financially illiterate: he does not understand the interest agreement on his credit card bills or his loans, or how to budget his money.
“Juan” is not unique. As most academic advisors know, students present advisors with all kinds of personal issues, including financial ones, when they seek advice. Although most advisors are not trained financial aid counselors, it is important that we have a general understanding of available financial resources if we are to refer students to the proper “expert.”
When students with financial needs come to us regarding their financial situation, we can tell them about a new financial tool called Individual Development Accounts or IDAs. IDAs are matched savings accounts that can help low-income students and their families save toward postsecondary education. In addition to matching savings from 2:1 to as high as 8:1, IDA includes financial literacy education, asset-specific education, and case management.
What is an IDA tool?
Low-income students and their families can open an IDA account (a matched savings account for postsecondary education) with a nonprofit organization and start saving. For example, if a student saves $1,000, then the nonprofit organization matches the student savings dollar-for-dollar or more. Depending on the match rate, students can make $2,000 – $4,000 on a $1,000 investment. The student savings and the match are held in a bank and paid directly to the education institution. As the student saves, he receives case management, asset-specific education, and financial education from the nonprofit. For more information about IDAs including eligibility, see the FAQ and FAQII available on the Web site.
Why a financial tool?
Finances play an important role in whether low-income students remain in college (Lyons, 2004; Paulsen & St. John, 2002; Tinto, 1993). The cost to attend postsecondary institutions continues to increase and merit-based aid programs have replaced needs-based aid in many states. Loans are on the rise (Reed, 2008). Paulsen and St. John (2002) found that due to tuition increases, financial aid (loans and grants) is often insufficient in helping low-income students persist. These authors also found that as unmet need increases, student persistence decreases as these financial concerns affect student retention.
In addition to an increasing amount of loan debt, many college students fall victim to credit card debt. A Nellie Mae study (2005) found that the average college student graduates with more than $2,000 in credit card debt. Lyons (2004) found that students who have trouble handling credit card debt also were more likely to receive need-based financial aid and their parents provided little to no financial assistance. Lyons further noted that these financial strains may affect the retention of low-income students.
For the rest of the article, please visit NACADA’s Academic Advising Today website.