Ensure young people understand college debt (opinion)

The Biden administration has discharged student loan debts for some college graduates—so far fewer than one million individuals. This is a good start, but, as The Hill reports, “45 million borrowers collectively owe $1.7 trillion in student loans, and data shows the average borrower holds more than $36,000 in debt.” Under our laws, student loan debt is virtually impossible to discharge in bankruptcy.

How can we assure that future college students avoid a financial mistake that takes too many nearly a lifetime to dig out of?

The problem is that many 18-year-old high school students are making one of the most consequential financial decisions in their life with little training and guidance. Too many make these decisions based primarily on emotion, not reason.

Once accepted to college, students take on debt that neither they nor their parents fully understand. In short, they don’t look at potential earnings with specific degrees, or how long it will take them to repay college loans.

They fail to research the income expectations of specific college majors, and they do not analyze how much student loan debt they can safely take on. They have no idea what their monthly loan payments will be when they graduate, and they don’t realize there could be less expensive ways to obtain a degree for certain college majors.

Smart college choices require financially astute decision making. Picking a college is more than making visits and deciding which campus feels right. I hope more families are looking at data like this study, done by Georgetown University’s Center on Education and the Workforce, about college majors and earnings, as well as research on college ROI, but I fear not enough do.

High schools and colleges are failing our youth by not giving them the personal finance knowledge and skills that they need to safely and responsibly manage their student loan burden.

High schools across America have an obligation to help our young people as they grapple with the decision to take on debt for college. They should help students explore and research colleges, majors and career options. Understanding how much income they can expect to earn will help them determine how much college debt they can handle.

I believe that leaders in high school and higher education have a moral responsibility to emphasize sound financial planning for college, but I realize it’s impossible for institutions to monitor every student’s personal situation.

A recent Student Voice survey from Inside Higher Ed and College Pulse, sponsored by Kaplan, provides a snapshot about students’ personal finance knowledge. Half of the 2,000 students surveyed report that tuition, course materials, housing and fees cost more than they expected. And COVID made staying in college much more difficult, with many indicating they had nearly had to drop out during the pandemic.

Others say they had experienced food and housing insecurity while in college. Unfortunately, this was even more true for Black and Latino students. And nearly two out of three students surveyed are very or somewhat worried that one major financial setback would impact their ability to keep up with their bills enough to avoid dropping out of college.

In the survey comments, students readily admitted they were unprepared to make the financial decisions they made in applying for and enrolling in college. They wished they had applied for Pell Grants and more scholarships and known more fully what college debt would mean to their quality of life upon graduation.

A University of Vermont student indicated, “I wish it had been explained to me the actual weight of up for thousands of dollars in signing loans, what responsibilities I’d automatically have, how long I should expect to be in debt, what kind of job I should expect to have in order to pay off the debt, etc. Most importantly, I should’ve been advised on how to decide if the cost of college is worth it or not, and on how to decide how much I was willing to sign up for in debt. Before college, and still now, I don’t really have a grasp on how much money $50,000 is, if it’s a ‘reasonable’ amount for tuition, fees, etc., or how I’m going to pay off loans.”

This was a common sentiment among survey respondents.

More Can Be Done

College and university presidents, admissions and financial aid professionals should advocate for mandatory personal finance education in every high school, so young people are better prepared to make smart financial decisions when applying to college.

And believe me, I know from my own center’s research that high schools could use their help and support. We are in the process of preparing a report card showing how well or poorly each US state performs in terms of high school personal finance education. In our last report, in 2017, fewer than half of the states earned an A or B grade.

Five years later, much has changed for the better. The number of states that require a personal finance course in high school will likely rise from five to 10. When our report is issued later this year, it looks like 20 percent of states will earn A’s, while 20 percent will receive either D’s or F’s .

How much students learn about personal finance varies greatly by state, school district and even individual educators.

When it comes to personal finance education, the devil is in the details. For example, we project that around 35 percent of states will earn a B grade, which typically means personal finance content is required to be embedded in another course, like economics. But how much they learn about personal finance varies greatly by state, school district and even individual educators. That’s why we feel a full-semester course focused entirely on personal finance is best.

Shouldn’t every student be required to take 60 hours in personal finance instruction before they incur student loan debt? We know that in four out of five states, such instruction is not required. This is consistent with the Student Voice survey, in which fewer than one in four college students indicate that they learned about money and finances in a high school class.

Whether a state has a requirement or not, higher education should not wait to get involved. The same Student Voice survey found that only one out of 10 students learned about money and finances from their college or university. If high schools are not doing this training, then colleges must give indebted students the tools they need to responsibly manage student loan debt.

Most colleges could not survive and pay their bills without the funding they receive from student loans. Yet, the vast majority of colleges do not provide substantive and mandatory personal finance instruction, especially as it relates to how students should manage their economic burden.

Far too many students only begin to clearly understand the results of their cumulative loan decisions when their loans are in repayment mode—six months after graduation. By then it often is too late.

The government requires that colleges provide student loan counseling to first-time federal student loan borrowers. A website provided by the US Department of Education offers personal finance instruction, and all colleges require new students to use this online educational tool prior to obtaining their first loans.

Sadly, the next time students likely think about finances is at graduation. Theoretically, they would go to the same government website or receive a brochure that provides information on how to repay student loans. But the evidence is clear that the process is viewed by colleges as a compliance obligation and by students as a graduation formality.

Given this background, it is not surprising that in 2019, in response to a request from the US Congress, the Financial Literacy Education Commission (comprised of 23 US government agencies, departments, etc.) issued a report that stated, “The FLEC recommends that institutions of higher education mandatory financial literacy coursesdeploy well-trained peer educators, integrate financial literacy into core curricula, and communicate with students about financial topics more often than during required entrance and exit counseling” (emphasis added).

I am proud to be affiliated with Champlain College, where all undergraduates are required to participate in personal finance instruction before graduating. It is the right thing to do.

In sum, the obligations around college loans shouldn’t just be shouldered by students alone. A combination of mandatory, substantive personal finance education in every high school and college is necessary. Sadly, such education offerings are often unavailable or not required. Shockingly, the Student Voice survey also revealed that more than two out of three students are not sure if their college even offers personal finance instruction. This needs to change.

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