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Wealth, Race, and Under-Addressed Financial Need in Federal Student Aid Policy

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Title: Wealth, Race, and Under-Addressed Financial Need in Federal Student Aid Policy
Language: English
Authors: Christian Michael Smith (ORCID 0000-0002-8024-3832), Laura T. Hamilton (ORCID 0000-0002-0656-7185), Charlie Eaton (ORCID 0000-0002-4973-406X)
Source: Research in Higher Education. 2025 66(5).
Availability: Springer. Available from: Springer Nature. One New York Plaza, Suite 4600, New York, NY 10004. Tel: 800-777-4643; Tel: 212-460-1500; Fax: 212-460-1700; e-mail: customerservice@springernature.com; Web site: https://link.springer.com/
Peer Reviewed: Y
Page Count: 24
Publication Date: 2025
Document Type: Journal Articles
Reports - Research
Descriptors: Federal Aid, Student Financial Aid, Financial Needs, Needs Assessment, Income, Race, Funding Formulas, Low Income Students, Minority Group Students, African American Students, Hispanic American Students, Loan Default, Debt (Financial), Grants, Racial Differences
Laws, Policies and Program Identifiers: Pell Grant Program
DOI: 10.1007/s11162-025-09851-9
ISSN: 0361-0365
1573-188X
Abstract: Federal student aid formulas prioritize income over wealth. Using nationally representative data from two cohorts, we argue that federal student aid policy thus under-addresses wealth-driven financial need and that this oversight contributes to racial disparities in student debt, in turn reinforcing the United States's longstanding racial wealth stratification. Our analyses show that Black and Latine students are disproportionately likely to be low-wealth and to face double disadvantage by wealth and income. We find that, even net of federally-determined financial need, lower-wealth students borrow more in their first year, borrow more over the course of 12 years, owe a greater percentage of original student debt after 12 years, and are more likely to have defaulted on a student loan over the course of 12 years--suggesting considerable unmet need. A basic simulation of how students would have fared with the implementation of a supplemental wealth-based Pell Grant indicates that better accounting for wealth in financial aid can reduce debt burdens and confront racial inequities in student loan debt. The results therefore highlight higher education's centrality as a social institution in which seemingly race-neutral policies may nonetheless reinforce racial stratification.
Abstractor: As Provided
Entry Date: 2025
Accession Number: EJ1476692
Database: ERIC
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  Data: Wealth, Race, and Under-Addressed Financial Need in Federal Student Aid Policy
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  Data: <searchLink fieldCode="AR" term="%22Christian+Michael+Smith%22">Christian Michael Smith</searchLink> (ORCID <externalLink term="http://orcid.org/0000-0002-8024-3832">0000-0002-8024-3832</externalLink>)<br /><searchLink fieldCode="AR" term="%22Laura+T%2E+Hamilton%22">Laura T. Hamilton</searchLink> (ORCID <externalLink term="http://orcid.org/0000-0002-0656-7185">0000-0002-0656-7185</externalLink>)<br /><searchLink fieldCode="AR" term="%22Charlie+Eaton%22">Charlie Eaton</searchLink> (ORCID <externalLink term="http://orcid.org/0000-0002-4973-406X">0000-0002-4973-406X</externalLink>)
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  Data: Springer. Available from: Springer Nature. One New York Plaza, Suite 4600, New York, NY 10004. Tel: 800-777-4643; Tel: 212-460-1500; Fax: 212-460-1700; e-mail: customerservice@springernature.com; Web site: https://link.springer.com/
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  Data: <searchLink fieldCode="SU" term="%22Pell+Grant+Program%22">Pell Grant Program</searchLink>
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  Data: Federal student aid formulas prioritize income over wealth. Using nationally representative data from two cohorts, we argue that federal student aid policy thus under-addresses wealth-driven financial need and that this oversight contributes to racial disparities in student debt, in turn reinforcing the United States's longstanding racial wealth stratification. Our analyses show that Black and Latine students are disproportionately likely to be low-wealth and to face double disadvantage by wealth and income. We find that, even net of federally-determined financial need, lower-wealth students borrow more in their first year, borrow more over the course of 12 years, owe a greater percentage of original student debt after 12 years, and are more likely to have defaulted on a student loan over the course of 12 years--suggesting considerable unmet need. A basic simulation of how students would have fared with the implementation of a supplemental wealth-based Pell Grant indicates that better accounting for wealth in financial aid can reduce debt burdens and confront racial inequities in student loan debt. The results therefore highlight higher education's centrality as a social institution in which seemingly race-neutral policies may nonetheless reinforce racial stratification.
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  Data: EJ1476692
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        Value: 10.1007/s11162-025-09851-9
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      – Text: English
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      – SubjectFull: Federal Aid
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      – SubjectFull: Student Financial Aid
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      – SubjectFull: Financial Needs
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      – SubjectFull: Needs Assessment
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      – SubjectFull: Income
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      – SubjectFull: Race
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      – SubjectFull: Funding Formulas
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      – SubjectFull: Low Income Students
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      – SubjectFull: Minority Group Students
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      – SubjectFull: African American Students
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      – SubjectFull: Hispanic American Students
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      – SubjectFull: Loan Default
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      – SubjectFull: Debt (Financial)
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      – SubjectFull: Grants
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      – SubjectFull: Racial Differences
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      – SubjectFull: Pell Grant Program
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      – TitleFull: Wealth, Race, and Under-Addressed Financial Need in Federal Student Aid Policy
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