This study: ‘The role of formal education in alleviation of poverty is a case study of Khyber Pukhtunkhwa’. It is a comparative study of literate and illiterate respondents from slum areas of KP which evaluates the role of formal education in poverty alleviation by comparing the socio-economic status of both types of respondents, their personal views and thinking, their involvement in decision making process, their importance or triviality in the family and their participation in community matters. This research study develops an understanding of the educational benefits and human capital approach that can be used to enhance literacy for people especially for poor. The research is based on the importance of education in promoting free education as a constitutional right by comparing the socio-economic status and other contributing factors of literate and illiterate respondents. As a way of determining the benefits of education can offer. The main objectives of this research were to study illiteracy as cause of poverty, the causal link of education and poverty alleviation, its impact on the socio-economic status and comparison of literate and illiterate respondents with their views about availability of free education in KP province. The major hypothesis developed for this study was that higher literacy rate among people has greater potentials to combat poverty. For this purpose an interview schedule was drafted in accordance with research study objectives. The interview schedule consisting of sixty five questions was used as a tool to get information from the respondents. Eight hundred respondents i.e. four hundred illiterate and four hundred literate respondents (who were basically from the same slum areas but their socio-economic status improved as a result of education) were selected according to Warwick P.D and Linger C.A (1975, pp 69- 110) formula f = n / N through various sampling techniques the details of which have been given in chapter-3 of Research Design. The data collected was analyzed and tabulated and standard statistical tests of significance were used. The results were collected through a series of phases delivered across both types of respondents studied. These being: total monthly income, number of children, affordability of different types of diet and health and education services, point of views about importance of education, benefits of education, factors responsible for accelerating poverty and knowledge about free secondary education as a constitutional right and its availability for poor people. The main purpose of the study was to evaluate the socio-economic status of literate and illiterate respondents; in order to understand if education impacts human poverty. Furthermore, education was investigated as a human capital approach to accelerating human knowledge and skills and raising earning outcomes in KP province. The results of the study supported the hypotheses of the study. The comparative status of both the literate and illiterate revealed that high percentage of literate respondents were in the high income groups. This positively affected their living conditions. Majority of them were now living in pucca/concrete houses. The study also revealed that various other indicators, such as access to different types of diets, affordability of medicines and quality medical care, children education, participation in family and community matters and development activities confirmed improvements in the socioeconomic status of the literate respondents. While majority of the illiterate respondents were living in kacha/mud houses. During the process of this study, the researcher explored that largely due to illiteracy and poverty the illiterate respondents were unable to give education to their family members or children. Because they could not afford the cost of education and the family members were compelled to find some form of work to enhance their family’s incomes. Resultantly when such family members start practical life they are likely to form poor households because they lack sufficient income earning capacity due to inadequate human capital which becomes a cause to perpetual transmission of poverty from one generation to the next. “Human Capital” theory served as a theoretical framework of the study was tested for its validity through findings of the research study. Based on the findings of the research study, the researcher offers some key workable recommendations and a new model for the improvement of existing formal education system, its relevance, effectiveness and access to free secondary education in the province.