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We use unique data to examine how college students from low income families form expectations about academic ability and to examine the role that learning about ability and a variety of other factors play in the college drop-out decision. At the time of entrance, students tend to substantially discount the possibility of bad grade performance. After entrance, students update their beliefs in a manner which takes into account both initial beliefs and new information. Learning about ability plays a very prominent role in the drop-out decision.

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