Dept Lessons: How Financial Aid Literacy Programs Are Helping Keep Student Debt under Control
Stinson, Sonya, University Business
A spooky cloud of crimson smoke dramatizes the dread of overwhelming student debt in "The Red," a short movie thriller created for SALT, the American Student Assistance financial literacy program for students and alumni. Less dramatic but noteworthy still, college students logging onto the National Endowment for Financial Education's CashCourse can take a "Financial Realities" quiz to test their knowledge. In the opening question, they're asked what will have the worst impact on their finances: gourmet coffee drinks, borrowing money, or spending without a plan.
Teaching students why the third option is the correct answer is a common goal of college financial literacy programs. While these programs stress that borrowing to get a college degree can be a wise investment that pays off big in lifetime earnings, one of their other top aims is reducing the student loan default rate.
Many higher ed leaders are realizing that the best way to wrangle runaway student loan debt is to make sure students master the basics of money management. Their institutions have implemented comprehensive financial literacy programs that encompass not just managing loans and paying for college but also topics like budgets, credit cards, 401 (k)s, and payroll taxes.
To some degree, institutions are rolling out these programs by necessity. The Higher Education Act of 1965 requires colleges to provide entrance and exit counseling to students receiving federal loans, to review such information as the terms of the loan and repayment plans. Some institutions also offer general debt management advice in those counseling sessions, as financial aid and college planning author Mark Kantrowitz notes on his website FinAid.org. And some financial literacy advocates would like to see a stronger push from the federal government.
"We at ASA are in favor of using the upcoming reauthorization of the Higher Education Act to encourage financial education counseling to student borrowers through financial aid offices, employers or nonprofits," says Allesandra Lanza, director of corporate public relations for American Student Assistance.
Here's how financial literacy efforts have evolved on campuses and how the content of these programs is helping students to wisely manage their debt--and in turn helping to keep default rates down.
Programming is prevalent
Back in 2004, Sharon Cabeen, now financial literacy program director for TG, was just entering the college financial aid consulting business. That year she attended a conference of financial aid directors and asked a room of about 100 attendees how many believed it was their job to teach students about money management. Fewer than 10 people raised their hands.
"Two years later, in the same kind of situation, about 90 percent of the room raised their hand," Cabeen says. "So it has really grown since the early 2000s. Numerous kinds of groups have tried to assist the higher education community in implementing financial literacy, but the schools are finally adopting it."
NEFE was one of the first U.S. organizations to develop a financial literacy curriculum for college students, launching its CashCourse program in 2007.
"Each year we've seen a huge growth of interest in personal finance ... and teaching students how to manage their money, not only while they're in school but also preparing them for after school," says Amy Hartenstine, NEFE's CashCourse program director. She anticipates that many colleges and universities will not only launch similar programs, but more institutions will form specific departments or centers focusing on student money management.
Cindy Morris, senior default conversion consultant at TG, Says financial literacy has become a key component in the default management plans at many colleges and universities.
"Default prevention is kind of a new idea for schools," Morris says. …