Nowadays, the archetypal college student not only hits the books but also punches the time clock. Nearly three-quarters of all college students have jobs and recent student cohorts are not only more likely to work than in the past, but also work more hours. This shifting profile of students and the difficulty many students have affording college has led to amplified policy attention on working while in college. A prior Chalkboard post discussed proposals to expand the federal work-study program. However, because most college students who work earn income outside of the financial aid system, the policy implications of student employment extend well beyond federal work-study.
The increasing vocational activity of college students reflects two trends: expanded work participation among young full-time “traditional” college students and growing college attendance among “non-traditional” students who are likely to work concurrent with their studies. This return to school among this latter group of students is touted in major policy initiatives to spur economic productivity, yet many of these students face substantial barriers to success in college. Compared to traditional college students, non-traditional students come from households with relatively low incomes and are less able to rely on family financial support. Many care for others. As such, these students are more likely to rely on financial assistance in order to enroll and persist in college, but face an aid system that was designed with other, more stereotypical types of students in mind.
Financially independent students and financial aid
Though the “non-traditional student” moniker has various meanings, the focus here is on financially independent students, which are a prominent but understudied group in the context of financial aid. Nearly half of all undergraduate students and all graduate students are considered financially independent in the financial aid system, that is, they are not expected to receive meaningful financial support from their parents because they are older, married, have served in the military, support a child, or have emancipated themselves for other reasons. The success of these students should matter to policymakers not only because they are enrolling in great numbers, but also because they gravitate to educational institutions where student loan repayment rates are relatively low.
Financially independent students confront unique challenges when seeking financial aid. Many of these students attend school part time because of job and family commitments, which lowers their eligibility for financial aid. Moreover, federal need-based financial aid programs are commonly based on a model where students may make some summer income, but predominantly depend on parental resources. As a result, financial aid formulas effectively tax higher earnings by calculating less aid for students who earn modest levels of income—as much as 50 cents less aid for each marginal dollar of income. These implicit tax rates are higher for students’ earnings than for parents’ incomes. This model does not serve the needs of many working students, for example, students who go to college at night while working during the day, students who return to college after being in the labor force, or students who have substantial responsibility to support others. These students may find that their commitment to working is penalized by lower financial aid receipt.
A simple example illustrates the differential treatment of income in federal financial aid formulas. Iris and Miles are two fictional students who are similar in all ways relevant to the financial aid system, except that Iris is considered financially dependent and Miles is considered financially independent. Both come from households where parents effectively make no income and want to take a year off after high school in order to work before going to college. They face the following parameters when considering how much their work affects their aid receipt.
- As a financially dependent student, Iris can make over $31,000 before the maximum amount of her Pell Grant eligibility (nearly $6,000 in the upcoming school year) begins to decline.
- As a financially independent student, if Miles’ income exceeds about $11,000 (approximately the federal poverty line), the amount of Pell Grant for which he is eligible declines with every dollar he makes. If he works full-time for a year at minimum wage, he would be eligible for about $4,000 in Pell Grant aid, and is eligible for no Pell Grant aid if he makes over $24,000 for the year.
Do students respond? And should they have to?
The treatment of income in the financial aid system creates an incentive for some students to work less before or while in college. In the example above, Miles might choose to restrict work after he’s made $11,000 for the year, since he would be losing financial aid as he makes more. The real or perceived disincentive to work is troubling because it may make college success less feasible for non-traditional and working students. As well, encouraging students to work less may not be in their best long-term interest; recent research suggests that marginal work hour increases do not have a severe academic penalty for students but can lead to later labor market benefits.
There are a number of reasons students may not respond to incentives in the financial aid system, however. Complex need formulas make it difficult for students to calculate the amount of aid for which they are eligible or to understand how much they can earn in order to optimize aid receipt. The timing of financial aid application and receipt further mutes possible students’ responses. Moreover, many working students have financial obligations that make it impossible for them to change their work commitments in an effort to act strategically with respect to financial aid.
In a recent working paper, I analyze whether students try to maximize their financial aid by working less using national student record data on financially independent students. I find little observable evidence that students adjust their work behavior in an attempt to avoid financial aid penalties. This apparent lack of response does not mean that these implicit income taxes have no impact. The reduction in aid that many working students face adds extra financial burden to resource-constrained students. More work is needed to better understand the associated consequences for students’ college success.
Many non-traditional and working students need to both work and receive financial aid in order to afford college and meet other financial obligations. Their efforts to work should not be penalized. For these students, income from a prior calendar year (or a prior-prior year) is likely not a good indicator of ability to pay for college. Therefore, if policymakers are committed to helping non-traditional, working students enroll and succeed in college, we need to carefully consider how to appropriately account for these students’ financial resources in the federal financial aid system.
 An example of this is presidential primary candidates’ inclusion of work requirements in college affordability plans. See https://www.insidehighered.com/news/2015/10/13/free-college-plans-some-democrats-push-student-work-requirements.
 All calculations listed here use the “Federal Student Aid FAFSA4caster” available from the Department of Education, with the default assumptions: https://studentaid.ed.gov/sa/fafsa/estimate. Students are assumed to be single, with no other college-goers in their household, and live in Missouri.