According to a recent report by economists Pinghui Wu and Lucy McMillan from the Federal Reserve Bank of Boston, working college students who experience job loss are more likely to drop out of school. The study, titled "Credit Access and the College-persistence Decision of Working Students: Policy Implications for New England," reveals that when a working undergraduate aged 18 to 24 faces involuntary job loss, their chances of not returning to school the following academic year increase by 17%.
Although only 2% of the students in the study sample were affected by job loss, the authors highlight that more than half of the 18- to 24-year-old undergraduates in the United States hold jobs, with nearly half of these working students relying on their income to pay for their college education. This correlation between job loss and dropping out of school has significant implications, not just for individual students, but also for the overall vitality of the labor market in regions like New England, where the number of people employed in higher education is more than twice the national average.
To address this issue, Wu and McMillan suggest that policymakers should consider providing unemployment assistance through unemployment insurance or financial aid programs to working students who lose their jobs. They emphasize the importance of employment stability for the retention of young working students and propose that a small contingency fund can go a long way in preventing college dropout due to temporary employment disruptions.
The study also highlights the impact of the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) on college persistence. The authors note that before 2009, the year the CARD Act was implemented, job loss had a minimal effect on college persistence. However, the law, which aimed to make credit card lending more transparent, unintentionally made it more challenging for working students to obtain the funds they need to stay in school after losing their jobs.
Wu and McMillan explain that a provision of the CARD Act restricts how credit card companies market and issue cards to college students or individuals under the age of 21. This led to a decline in the share of new credit card accounts issued to young cardholders and a decrease in the percentage of undergraduate students with credit cards. They estimate that the reduced use of credit cards by undergraduates after 2008 could account for up to 96% of the subsequent increase in the college dropout rate among working students during the post-CARD Act period.
While the authors caution against loosening the restrictions of the CARD Act, they suggest alternative measures to mitigate the effects of job loss on college persistence. Expanding student financial aid or unemployment insurance benefits could provide preferable solutions, but the current qualifications for these benefits would need to be broadened. Currently, job loss by a working college student is rarely covered by student aid or unemployment insurance, as the eligibility criteria do not account for sudden drops in earnings caused by job loss.
The authors propose that policymakers should consider revising the qualifications for unemployment insurance benefits to include working college students and expand emergency aid programs offered by colleges to cover students facing job loss. By doing so, they argue that the fiscal burden on the unemployment insurance system would be minimal, while the long-term benefits in terms of human capital gains would be substantial.
In conclusion, the study highlights the vulnerability of working college students to dropping out of school when they experience job loss. It calls for policymakers to address this issue by providing unemployment assistance and expanding financial aid programs to support these students during temporary employment disruptions. By doing so, the retention of young working students can be improved, ensuring a more stable labor market and fostering the educational aspirations of these individuals.
For additional details, please follow this link: https://www.bostonfed.org/news-and-events/news/2024/01/working-college-students-dropping-out-unemployment-pinghui-wu-boston-fed-research.aspx
