STUDENT LOAN DEBT

U.S. Government calls out colleges and universities New report recommends mandatory financial literacy education

Student loan debt continues to smash records year over year. The total for 2019 so far amounts to the highest ever recorded, but is likely to be overshadowed by 2020’s figures. Student loans now amount to a $1.5 trillion crisis borne by more than 44 million borrowers across the nation, and the trendlines have not shown any signs of changing anytime soon.

Against this backdrop, a new federal report released last month recommended that universities implement mandatory financial literacy courses for incoming students. The report, published by the U.S. Financial Literacy and Education Commission noted that student borrowers especially lag in financial understanding and often fail to grasp how their loans work, despite efforts by lenders to educate them. The result is that student loan debt is now the second highest consumer debt category, with only mortgages coming in higher.

“Institutions of higher education can address this challenge by effectively engaging students in financial literacy and education,” the commission wrote. “The FLEC recommends that institutions of higher education require mandatory financial literacy courses, deploy 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.”

Students’ families often lack financial awareness as well. The National Association of Student Financial Aid Administrators, in a 2013 report, found that families felt “overwhelmed and confused” when reviewing multiple financial aid offers. In addition, recent analyses by New America and uAspire found that financial aid offer letters lack standardized terminology, consistent definitions, content, or formats, further complicating matters for overwhelmed families. The report recommended standardizing offer letters, clearly stating the total cost of attendance, and excluding Parent PLUS loans from financial aid packages so students could see what, exactly, they would be on the hook for post-graduation. The report also recommends that institutions itemize financial aid lists and highlight the differences between aid types so that consumers can make more informed choices.

The FLEC report also noted that colleges and universities can leverage data to track knowledge gaps and student needs. And filling those student needs might make a dent in the $28,650 loan burden carried by the average borrower.

“The use of data can allow the institution to meet the actual needs of students, identify students most at risk and deploy resources effectively using an evidence-based approach,” the commission wrote. “Institutions should also continue to collect and assess performance data to measure impact and reinforce a culture of continuous improvement.”