Barriers to Financial Aid: Addressing Inequalities in FAFSA and Banking 

When seeking financial support, governmental aid is a crucial resource for many struggling low-income families. However, many families are unable to seek it due to unequal treatment, access, policies, and distribution. Discrimination plays a major role in financial aid, and it is essential to recognize how these structural inequalities limit opportunities to provide equal aid for all. 

Standing for the Free Application for Federal Student Aid, FAFSA is a key tool in helping students from low-income families access financial support for higher education. Many states and colleges consider FAFSA information when giving aid, and to be eligible, students must complete and submit the FAFSA form. However, there have been multiple controversies surrounding FAFSA. In 2024, FAFSA’s relaunch was plagued by mistakes and miscommunication. The relaunch added a 4-6 week delay, meaning students would have to wait even longer for financial aid offers from colleges and universities. During the relaunch, many students were forced to choose and commit to a college without knowing whether they could afford it, discouraging some from enrolling. Through the hectic chaos, one group was affected more than the rest– Black and Latino communities. Additionally, FAFSA had already favored students who applied early. Low-income students often apply later, causing them to receive little to no aid. Those who file in FAFSA within the first three months often receive double the grants compared to late applicants. According to a new report conducted by The Century Foundation’s Peter Granville, the drop in FAFSA completions during the relaunch was significantly worse among historically marginalized communities. Communities with Black or Latino residents living in poverty had already experienced 20% less FAFSA completion than other low-income communities but saw a 16.7% decline during FAFSA’s relaunch. As a result, colleges saw significant enrollment declines in those groups, threatening to reduce their college enrollment in 2025 and widen educational inequality. 

Beyond disparities in aid administration, banking exclusion also plays a crucial role in limiting financial aid access for minorities. A study by the Joint Economic Committee has proven that people of color and low-income communities are disproportionately harmed by banking and financial exclusion. Many barriers to banking disproportionately harm underrepresented communities, and Black and Hispanic Americans are twice as likely as White Americans to be unbanked or underbanked. Although 20% of Americans are unbanked, 40% of Black Americans and 29% of Hispanic Americans who earn less than $25,000 per year are unbanked or underbanked. Furthermore, many have unusable credit scores or are “credit-invisible.” Without a credit record or available banking, these communities are thus forced to rely on more costly alternatives, further widening already existing income and wealth disparities. 28% of unbanked individuals rely on prepaid cards, while 7% of banked individuals do. Money ordering, check cashing, or bill payment services, the most costly alternatives, are used by 56% of unbanked individuals and 15% of banked individuals. When state-imposed financial aid requirements demand access to banking institutions, marginalized groups face additional barriers to receiving and managing financial aid, decreasing their available options. 

Written by: Claire Liu