When Education Secretary Betsy DeVos released her department’s budget, helping college students manage loans was not a priority, despite record numbers of borrowers and delinquencies reported by the Federal Reserve Bank of New York.
This rapid rise of college student debt is having an unconscionable effect, keeping our young people, through no fault of their own, from moving forward in life. They are delaying marriage and home ownership, and too many are doomed to having this debt hanging over their heads for half of their adult lives or longer.
A depressing note — this report by the American Association of University Women shows that women are worse off than men, because they attend college in greater numbers, take out larger loans and have lower starting salaries.
Some blame this crisis on the high cost of college, which is certainly a factor. So too is a job market with virtually no growth in inflation-adjusted salaries for college grads since 2007, making it very difficult to advance financially. It is also true that the student loan process needs to be improved.
But isn’t it ironic that although these are education loans, I hear no one talking about the moral obligation we have to educate young people in personal finance. High schools, colleges and the federal government are not giving students the knowledge and skills they need to manage student debt.
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High school educators and counselors should help students explore and research colleges, majors, and career options. They need to focus students’ attention on how much graduates of specific majors earn, in order to help them determine how much college debt they can handle.
“High schools, colleges and the federal government are not giving students the knowledge and skills they need to manage student debt.”
We need to point out that following one’s passion is the right thing to do, but it does have financial consequences. College is an investment, and college majors have varying returns on that investment. This 2015 study by Georgetown University shows that there is a difference of $3.4 million in lifetime income between the lowest and highest paying college majors.
First-year college students arrive with their loans, but without any personal finance training at home or in grade school or high school. Colleges and universities operate largely through the funding student loans provide, so I believe they are honor bound to help students understand how credit cards, student loans and credit scores work.
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I’m pleased that my employer, Champlain College, requires financial sophistication training as a graduation requirement, but few institutions require do the same. A 2016 survey by Money Matters on Campus found that only 10 percent of students felt that they had all the information they needed to pay off their loans. Unfortunately, they only begin to comprehend the impact of four years or more of cumulative loan decisions when the first payment is due after graduation. That’s often too late.
Uncle Sam currently earns about 2.25 percent annually on student debt. They call this “subsidy income,” but I think most of us would call it profiting at the expense of uneducated young consumers. So they too owe it to our young people to educate them.
The Department of Education makes an attempt to counsel first-time federal student loan borrowers through its online student loan training module.
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All colleges require new students to complete this module prior to obtaining loans, but sadly, this is viewed by most colleges, students and parents as an activity completed to pay the tuition on time, not a true learning opportunity.
Students go back to this government website when nearing graduation. They are directed to read information on how to repay student loans, but again, the process is viewed by colleges as a compliance obligation and by students as a graduation formality.
More should be done.
The federal government also needs to stop rewarding colleges that have low completion rates. What good are student loans if you don’t get the degree? And colleges and universities with shorter completion times to graduation should receive greater funding and more favorable rates.
It is immoral that we allow our young people to shoulder debts of $30,000 to $100,000 or more when entering the work world without any financial education. It’s time to get aggressive on a number of fronts, not the least of which is arming our graduates with personal finance knowledge and skills.
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John Pelletier is director of the Center for Financial Literacy at Champlain College in Burlington, Vermont.
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