Financial Training in School Is Crucial to Solving Student Debt Crisis
The American dream has been based for centuries on receiving a quality education, obtaining a certificate from a degree-awarding institution, and then beginning a life full of wealth and opportunity. Or at least that was the dream offered to the new dominant workforce of America: the millennials.
“Born between 1981 and 1996, during a multi-million dollar music video pop culture boom, millennials grew up saturated with a torrent of doctoral pictures of achievement and sayings such as, “It takes money to make it.” These were the messages that shaped their choices when selecting their academic and career paths to pay exorbitant tuition rates, eventually leading to many unprepared and financially ignorant students.
There are many reasons for the high amounts of student debt amassed by many millennials, including rising tuition rates and a lack of loan oversight. Inadequate financial literacy, however, is also partially to blame. Policymakers and educators, absent from many K-12 curricula, should emphasize efforts to teach students of all ages how to handle their resources wisely, especially when it comes to education spending. Also, it can be and has proved catastrophic to postpone financial literacy education until students reach college.
Student Loan Burden Is High
During the first wave of millennials entering college, fall enrollment for post-secondary degree awarding institutions increased by 26 percent between 1997 and 2007. As college enrollments rose, tuition rates also rose. From 2007-2008 to 2017-2018, prices for undergraduate tuition, fees, and room and board at public institutions increased 31 percent, while prices at private non-profit institutions rose 23 percent, according to the US, after inflation adjustment. Education Department.
Yet even those rises can’t completely account for how the U.S. set a new record high for student debt in 2020, for the first time surpassing $1.7 trillion. According to a new study released by the Board of Governors of the Federal Reserve System, student loan debt rose nearly 130 percent in the 10 years following the end of the Great Recession in 2009. As for the share of millennial student loans, 14 million student loan borrowers between the ages of 25 and 34 accounted for $472.6 billion in student debt as of the fourth quarter of 2020. In the same quarter, older millennials were pooled with Gen X participants (now aged 35 to 49), accounting for $466.7 billion in student loan debt.
Met with economic and social realities not encountered before their generation, like what President-elect Joe Biden called a “K-shaped” economy, millennials have borne the brunt of, or lack of, the wild, Wild West of student loan rules.
The U.S. Department of Education, acknowledging the harm done, finalized legislation in 2019 to protect student borrowers, make higher education institutions more accountable, and potentially save $11.1 billion over 10 years for taxpayers. Students born after the millennial generation (Generation Z) will therefore face a much tamer reality of financing higher education, one that is more ethical and controlled and less predatory.
Even, there must be something done. In the U.S., according to News & World Report, on average, college graduates from the 2019 class borrowed $30,062, representing $6,300 more than 2009 class borrowers. This rise of 26 percent over a decade means that financial literacy, though not the only solution, is a tool that must be used in the battle to tackle this rising financial crisis.
Teaching Kids About Money
The President’s Advisory Council on Financial Capacity, founded by Executive Order 13530 in 2010, was created to help the American people understand financial matters and make informed decisions. Three years later, the President’s Advisory Council on Financial Capacity for Young Americans was formed by Executive Order 13646. “Through the work of those Councils, financial literacy was described as “the ability to use experience and skills to effectively manage financial resources.
There was a legitimate reason for government officials to worry about the financial literacy skills of Americans. In the first large-scale global financial literacy assessment, 15-year-old American students fell short of global financial literacy standards in 2012, around the time the second council was formed. Students in 18 countries were assessed by the International Student Assessment Program (PISA) on their ability to apply mathematical skills and basic financial principles to real-world scenarios. The average U.S. score ranked ninth.
States Are Trying to Solve Student Debt Issue
Several states have passed legislation over the past several years requiring their K-12 schools to teach financial literacy. However, further work must be done. In 2018-2019, a national analysis conducted by Next Gen Personal Finance of more than 11,000 high school course catalogs found that less than 5 percent of students were expected to take a standalone semester of a personal finance course in 23 states and Washington D.C.
As far as higher education is concerned, financial literacy is not a compulsory course or initiative given at most universities. The Free Application for Federal Student Aid (FASFA) started incorporating knowledge and services many years ago to assist college students in enhancing financial decision-making. It’s been a decent start, but not enough yet.
Colleges should strongly consider the suggestions made in a best practice study released in 2019 by the Financial Literacy and Education Commission to help students make wise decisions. Founded under the Fair and Correct Credit Transactions Act of 2003, the Commission calls on institutions to provide financial aid offers and debt letters with’ simple, timely, and personalized information to inform student borrowing.’ It proposes that colleges mandate training in financial literacy with individual courses or by incorporating lessons into core curricula, and recognizes peer education as a promising way to provide students with knowledge on financial literacy. Because timely completion of the degree is protection against defaulting on student loans, the commission calls on colleges to allow students to graduate on time and to invest resources that support, such as financial assistance for emergencies.
Colleges that incorporate these strategies would help to better prepare the future workers of America to make financial decisions during their lives that enable them to engage in our economy efficiently, create wealth and achieve their goals. If successfully pursued and achieved, the state and federal mandate of K-12 and higher education financial literacy services could very well be the new education legislation with the longest-lasting effect for decades to come.