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How Financial Aid Betrays the Modern Family

The federal system is based on the flawed assumption that parents are helping their children pay for school.

A magnifying glass hovers over a sheet of one-dollar bills.
Gary Cameron / Reuters

Over the past few decades, the American economy has been transformed and the American family structures have changed—but the American system of college financial aid has barely budged.

For almost 50 years now, the United States has utilized virtually the same approach to distributing federal financial aid to families that need money for college. The circumstances, constraints, and conditions of family life have shifted substantially during that time, but the assumptions that financial aid makes about those families and the ways it interacts with them have changed very little.

Today, college campuses, family dinner tables, and national political circles are all abuzz with conversations about college affordability. But unless the United States first understands how the math of college financial aid went wrong in the first place, the country will never solve the riddle of fixing it.

Consider how the financial-aid formula assesses what a student will pay for college.  Families complete the Free Application for Federal Student Aid (FAFSA) and when they finish, they are told their “expected family contribution” (EFC). This is the number that parents are expected to pay to help send a young student to college, at least as long as the student doesn’t have a spouse or child of her own. The formula leading to the number doesn’t take into account the parents’ debt, even from their own educations. Yet with the EFC, the government makes a clear assertion: When it comes to paying for college, parents should help their students.

But sometimes they can’t. Sometimes, in fact, the money moves the opposite direction.

* * *

Ian Williams grew up in a loving Milwaukee family surrounded by four siblings and hard-working parents who strove to teach their kids important values and skills, like how to share. For anyone, relinquishing a piece of something you want to another person can be decidedly difficult, even if you love them. Yet the experience of sharing can be different in very low-income families. Williams, for example, learned how to share with his brothers and sisters in a way many of his college professors and administrators likely did not: He shared his food.

Growing up poor, the idea that family members would help each other out as needed was a given in Williams’s home. “That’s how my mother raised us,” he explained in an interview, “If a piece of us falls, we all fall.”

Williams’s father made his expectations clear. “You’re always supposed to look out for your family, no matter how much money you’ve got,” his dad would say. “If you’ve got a dollar or something, if there are four quarters and four kids, then you give them a quarter apiece. That’s how we were raised and how ever since then I’ve been trying to do it. Whatever I come across, it doesn’t have to be much, as long as I come across a certain amount of money that can benefit me and my family, I’m going to try and do that as much as possible.”

When Williams became a college student, his family’s longtime practice of sharing continued. He shared his limited funds—from grants, loans, and work—with his mother and brothers. The financial-aid system assumed that Williams’s family was helping him by providing his EFC of $425 annually, but his mom couldn’t make that payment. Instead, Williams paid the EFC with student loans, and he used his financial aid to help her. He explained, “My mama was my motivation. She kept me out of trouble and that type of environment, even though it was hard for her because she was going to work most of the time … That’s why I’ve got to do something; I’ve got to help my mother out.”

Even though sharing that money meant that Williams himself had fewer resources for college, he explained that he benefited emotionally from this exchange: “It’s a lot of relief that comes off my chest … It’s an unexplainable feeling. I’m in the position to help my family out now … I know the only reason I’m in the position that I’m in right now is because of my family … The things they did for me and everything—that’s what makes me want to do more for them. That’s what pushes me through college so I can help them out a lot.”

Williams understood that other students might react differently: “Yeah, at times I probably feel like I don’t want to pay for this. But at the same time, when I look back and I needed this when I was younger, [my mom] worked hard and [provided] everything for me. So why I can’t I do that the same way? That’s how I look at the situation.”

* * *

Williams’s story isn’t unusual. In a recent study of 3,000 financial-aid recipients that my research team tracked over six years, about one in three students reported that sharing money with her parents, siblings, grandparents, or cousins was part of her life. They spoke of patterns: Student helps family, family sometimes helps student, and even in the absence of that help, the student helps the family again.

One might assume that only students who live at home, or perhaps only community-college students, make such significant financial contributions to their families. But my research team observed this behavior among students at residential public universities as well. In our study, 11 percent of financial-aid recipients at universities said that they gave their families at least $50 per month, and 14 percent reported spending at least 10 hours per week taking care of an older family member or a younger sibling. The money (and time) undergraduates provide to their parents helps buy more than food and shelter. One woman said that her family expected her to use her student loans to purchase clothing for her sister’s children. Williams even used some of his financial aid to help his brother pay for courses at a local technical college, in an effort to protect him from spending time “on the streets.”

In fact, across a wide range of studies, scholars have found that young adults from low-income families often express a strong sense of obligation to family and a desire to give back to parents and other family members.  This is part of a strategy of adaptation created by adolescents in families facing economic hardship who are often enlisted early to fill family roles and responsibilities typically reserved for adults. In an age where there is a large number of single-parent households and where mass incarceration has broken up many families, particularly in inner cities, the old-style assumptions of the financial-aid formula look quaint indeed.

Ordinary American families look very different today than they did in the 1960s. Over the past five decades, the income gap between the wealthiest families and all others has grown dramatically. While the wealth of the bottom 90 percent has remained stagnant, costs have grown. Consumer debt levels have increased dramatically, particularly among working-class families. Most families have actually stopped saving. The average family in the bottom 90 percent saves nothing. (On average, families in the top ten percent now save 35 percent of their income.)

The growing wealth disparity has been accompanied by related changes in family structure. Less than half of all children under 18 in the U.S. are growing up in families with two heterosexual parents in a first marriage, compared with more than 70 percent in the 1960s. This change is primarily due to the increasing numbers of women who give birth outside of marriage. These women tend to be disadvantaged on almost every measure, including less education, lower income, and a higher likelihood of receiving government assistance.

Economic changes have hit African American and Hispanic families particularly hard. Such families enjoy far less economic security and stability than non-Hispanic white families. At the bottom end of the spectrum, nearly one in four Hispanic (24 percent) and African American (24 percent) households has no assets other than a vehicle, compared with just 6 percent of white households. This has a lot to do with the destruction of home equity during the Great Recession and the collapse of the housing market. Between 2005 and 2009, the median level of home equity held by Hispanic homeowners declined by half—from $99,983 to $49,145, while for African Americans it fell from $76,910 in 2005 to $59,000 in 2009.  White families enjoyed far more housing wealth to begin with and took smaller losses. The debt that families accrued during this time was unevenly distributed, too. For Hispanics, the median level of unsecured liabilities rose by 42 percent, compared to 32 percent for whites, and 27 percent for African Americans.

These disparities mean that the act of paying for college feels very different for lower-income and moderate-income families than it does for their wealthier counterparts. These measures are indicators of well-being—they mark the ability of families to pay for the things they need, rely on liquidity in times of stress, and enjoy a sense of economic power over their own lives. This is one reason for class disparities in how people think college should be paid for. When you have money, you think about paying for your child’s college differently than when you’re poor. Just 9 percent of people in families earning $100,000 or more say that students should be primarily responsible for paying for college, compared to 31 percent in families earning less than $35,000 per year. In contrast, 48 percent of wealthy families think that parents should be primarily or solely responsible for paying for college, compared to just 18 percent of low-income families.  What households without financial assets have to give up in order to send a child to college is significant—and critical. For the American mobility narrative to function and for hard work to actually pay off, all families must be able to make college possible for their children.

* * *

Any new approach to college financial aid needs to takes into account the new economics of American families.

With so much less money from their parents coming in, it is no surprise that low-income college students take on far more debt than their more affluent peers. Nor should it be a surprise that low-income students often feel obligated to share some of the loan money they do get with their families to ensure the family’s survival. Financial reciprocity is a rational and intelligent way in which families and communities adapt to poverty—in other words, the basic belief that “people should help one another” is not an effect of a culture of poverty, but rather a characteristic, strategic response to poverty.

The students surveyed for my book commonly downplayed their role, and called their actions merely “helping out,” or “pitching in.” This may be because giving also came with some “feeling good,” as Williams explained earlier. But there were downsides, too. My research team found that even after taking into account demographics and other factors, providing regular cash transfers to parents more than doubled the odds that a student would also work more than 20 hours per week during the first year of college and reduced by 7 percent the odds that a student would re-enroll for a second year of college.

Among the world’s large financial-assistance programs, financial aid for higher education stands out for its explicit stance against remittances. In many other settings, policymakers allow impoverished people to share their money how they choose, with the understanding that they are best able to decide what will help their lives the most. Yet when it comes to financial aid for college, it is simply asserted that the money is for the student, not the family. There is a specific term used by policymakers and financial-aid officers—and even some advocates—when it comes to talking about money that is used elsewhere.  It is spent on “non-educational expenses,” they say, and this is considered misuse, even fraud.

If rules against transfers to others were enforced, Williams would have been able to spend more of his aid on college needs. The mental anguish he felt in deciding whom to choose—himself or his family—might have been reduced. His life might be simpler, and his prospects for degree completion better. Maybe.

But it is also possible that such rules would have encouraged his family to be less invested in his education—literally. Williams’s time away from home, spent in the classroom and the library, could have become more intolerable—and the pressure for him to do something that brought home cash could have been even stronger.

This article has been adapted from Sara Goldrick-Rab's book, Paying the Price: College Costs, Financial Aid, and the Betrayal of the American Dream.