Financial-education curricula were developed during a time when most workers could count on a paycheck at a stable job.
With the growth in student loans continuing to soar, politicians and borrowers struggling with an issue that’s become both a financial and political problem.
Ultimately, it’s a laudable goal to help college students better understand their loans and their finances, but the question of how much to emphasize financial education underpins a broader debate about student debt, its causes, consequences — and possible solutions. Low-income students with financial constraints may find themselves deciding between a high-interest payday loan or bouncing a check. Much of what is taught and measured in traditional financial literacy and financial-education courses is how to evaluate relatively good choices through understanding concepts like interest rates or the difference between certain types of investment opportunities, he said.
If that’s the economic trajectory of your life, then the typical advice — to stash away as much money as possible in retirement and other investment vehicles — makes sense, he said. But “if your income is bouncing up and down month to month and year to year it’s not clear at all that that’s the best way to manage your money.”
And for some students, the “right” financial decision is actually to borrow more. It’s not uncommon for students to need loans in order to complete school and/or avoid working so much that it interferes with their progress. In other words, requiring students to learn more about their debt may do little to change the overall balance of outstanding student loans, Anderson said.
Some financial-aid offer letters describe loans parents can use to finance their children’s education as ‘awards.’ That obviously can cause confusion. How colleges package such information does influence students’ and families’ approach to financing college.
Deciding how much to borrow isn’t the only opaque part of the student loan process: Repaying debt can be confusing too. Federal student-loan borrowers have access to a suite of programs that allow them to manage their debt, but the high number of student-loan repayment plans can make it difficult for borrowers to determine their best option.
When Seth Frotman read complaints from student-loan borrowers during his time as the student-loan ombudsman at the Consumer Financial Protection Bureau, he said he observed said most students were responsible and took accountability for their debt: “This wasn’t people who had made bad decisions, it wasn’t people who were trying to walk away from their loans.”
Banning these schools from the federal financial-aid program would be a major step in the right direction for those concerned about the challenge of student debt, Ogden said. The school and peer counselors can be a better source of information for students looking to manage their finances than, say, parents or other mentors. At Indiana University, Schuman has been pioneering this type of programming. IU began sending students a debt letter in 2012.
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