Overcoming Financial Obstacles With Help From Higher Education Institutions

August 30, 2022 Watermark Insights

Research has shown that there is a strong correlation between education and income levels. In a 2017 economic report by the Federal Reserve Bank of St. Louis, researchers found that people who received a two- or four-year degree earn higher incomes than those who don’t. Earning a higher wage due to a higher education degree is called the “college wage premium.” While these wages vary from state to state, evidence shows that college graduates nationwide earn more than those who have not received a higher education.

The college wage premium matters, especially when taken into account that in 2019, 66% of high school completers enrolled in college, but the number of ethnic minorities who have earned a higher education degree has not kept pace. In 2020, only 39.2% of adults from age 25 to 29 had achieved a bachelor’s degree or higher. And while racial gaps in degree completion have narrowed, they have not narrowed enough. 27.7% of Black adults and 24.9% of Hispanic adults aged 25 to 29 have completed a bachelor’s degree, versus 44.6% of those who are white and 72% of those who are Asian.

Students who belong to groups that have been historically disenfranchised from college – low-income, Black, Latinx, and academically at-risk students – continue to struggle to achieve college success. This problem is only exacerbated when students struggle with financial obstacles that prohibit them from academic success.


Students who seek to secure financial aid to help them pay for college must first fill out the Free Application for Federal Student Aid (FAFSA) form. The FAFSA is the form used by the U.S. Department of Education’s Federal Student Aid to distribute more than $120 billion in federal aid each year. The FAFSA is used to make decisions regarding financial aid awards at both state and university levels. That being said, many students find filling out the form to be a complex and confusing process so they choose not to fill it out. This has left billions of dollars in federal aid left unawarded.

To try to help ease the complexity of applying for financial aid, in December 2020 the U.S. Congress passed the Consolidated Appropriations Act. The purpose of the act was to streamline the FAFSA process, making it easier for millions of college students to apply for and access federal financial aid. Unfortunately, in June 2021 the Department of Education delayed the revision process until the 2024-25 school year.

Another complicating factor is that once a student completes the FAFSA they may be called upon to provide additional information in order to process and approve their application. Many students from underrepresented and minority groups are flagged for further FAFSA investigation, putting their financial aid access at risk.

Each year the U.S. Department of Education flags around 25% of applications to audit through a verification process. This process requires students to attest to, and even prove, that the information they provided on their FAFSA application is accurate. The flagging and verification process is nearly three times higher (60%) for students who qualify for federal need-based Pell Grants. This is extremely concerning as nearly 25% of students eligible for Pell Grants fail to complete the verification process and end up losing out on thousands of dollars in federal aid. The current process requires students who need financial aid the most to go to great lengths to prove their eligibility. Evidence of this additional burden can especially be found at community colleges, who typically serve a disproportionately high number of Pell Grant recipients, where almost 25% of financial aid office budgets are spent on verification procedures as compared to private universities who only typically use 1% of their financial aid office budgets on such endeavors.

Student Loan Debt and No Degree

When students do not have easy access to financial aid programs they may feel it necessary to drop out of college before receiving their degree. In America, the overall dropout rate is 40% for undergraduates. 30% of college students drop out before the beginning of their sophomore year. Many students may start college, but cannot afford to continue their education due to financial challenges. Not finishing college may leave thousands of students with accumulated debt without the benefit of a degree to go with it.

Dual Enrollment

Additionally, students who are concurrently enrolled in two separate educational institutions, known as dual enrollment, face hurdles accessing financial aid. Dually enrolled students are typically high school students who are also taking college courses. These students are not eligible for federal financial aid. Also, college credits earned through dual enrollment can affect the amount of time that a student can receive state and federal financial aid and the maximum financial aid packages that students can receive from federal student loan programs. This means that students who take advantage of dual enrollment programs may end up missing out on much needed financial aid support that would help them finish college.

As such, it is vital for higher education institutions to shrink the equity in education gap by removing financial barriers to college success and completion. Simplifying the FAFSA application process, giving dually-enrolled students equal access to financial aid, and reducing the amount of education debt for students who did not complete a college degree are all vital parts of overcoming academic and financial obstacles for students.

The Role of Higher Education in Removing Financial Barriers

The first step in helping students successfully navigate financial obstacles is to identify low-income, high-risk students who could benefit from financial aid consulting services. Early Warning Systems (EWS) that use predictive analytics allow college administrators and student retention specialists to effectively connect with students, assist them in developing a plan for success, and intervene when necessary and in the most effective ways.

Predictive analytic software can anticipate issues before they happen, thereby allowing student success coaches to flag at-risk students and begin activating interventions. Predictive analytics leverages known data about the student to not just determine which students need assistance but also what challenges a student might face on their path to success. Predictive analytics use data harvested from campus-wide systems that can range from basic ‘geographic’ and ‘demographic’ features to more actionable ‘academic ability’, ‘performance’ and ‘behavioral’ features on campus that can indicate when a student might be falling off path.

These systems may also use sensitive “ability to pay” and “financial support” insights gleaned from the FAFSA to help explain why some students may experience financial hurdles as they seek to complete their degree. While information gathered from the FAFSA is commonly utilized in the early stages of a relationship between a student and an learning institution (i.e. during financial aid packaging), data extracted from the FAFSA form can also can impact an institution’s ability to meet the needs of students during later stages of the student’s academic career.

Another way that learning institutions can help guide students through the financial aid process is through student engagement – actively reminding students the importance of filling out the FAFSA form. This is especially important in community college settings where nearly half of students do not persist to their second fall semester. Community colleges increasingly have a nontraditional student population – older students, minorities, low-income students – who may have financial burdens that prohibit them from degree achievement without financial support. Engaging with students most in need helps to identify issues preventing students from academic success. One-on-one consultations allows student retention specialists to help identify specific workshops and other available resources for accessing and applying for financial aid.

Increased Success through Engagement

Learning institutions that have utilized EWS, predictive analytics, and student engagement programs have achieved increased student retention rates. Since 2017, community colleges that have partnered with Watermark (formerly Aviso Retention) to advance engagement with their students have seen a 12.3% increase in FAFSA completion across all students and, more specifically, an increase of 10% for Hispanic students on campus. Returning students that were sent a FAFSA-related note or alert from the Watermark Student Success & Engagement (formerly Aviso) program increased their FAFSA completion rates by 12.6%.

Additionally, students at Watermark’s partner institutions have submitted their FAFSA application on average within 161 days of the FAFSA becoming available, two months sooner than previously experienced. Students also, on average, submit their FAFSA 60 days prior to the fall start of school, an increase of 58% over what was previously noted. By partnering with Watermark, higher learning institutions have been able to increase student access to financial aid programs, ultimately resulting in greater success outcomes for the student.

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