College is expensive, and costs continue to rise while average family incomes are flat or declining. This means that a college education is increasingly out of reach for more Americans—to the detriment of individuals, families and society at large. While the situation is bad in general, it is worse for the worst off. We can hope for new policies and programs to alleviate this complex and difficult situation, but in the meantime what can we actually do to help?
The federal financial aid system facilitates access to college by making it possible for students from lower-income backgrounds to receive more grant aid. The system also allows students whose parents don’t qualify for PLUS loans to take out larger student loans. (Assuming two semesters per year for four years of college, students who qualify can borrow a maximum of about $45,000, as opposed to around $27,000 for those who do not qualify as independent or whose parents qualify for PLUS loans.) Since many parents with lower incomes may not be able to pass the credit screening to qualify for a PLUS loan, this policy increases the chance that students from low income backgrounds will be able to attend college. However, it also exposes these students to much greater risks and potential harms.
In short, the current system means that the burdens fall most heavily on those who can least afford it. With greater debt, these students must devote a greater proportion of their post-college income to loan repayment, have a higher rate of default, and so on. If they try to work more while in school instead of borrowing so much, they significantly decrease their chances of completing a degree. One of the few tools available to help mitigate these risks and harms is effective financial literacy education.
An important additional point is that college graduates are not the only ones who suffer under the current situation. Nationally, only about half of all freshmen who begin college earn a degree within six years. One of the greatest tragedies in American higher education today is the huge number of students who borrow money to go to college and never graduate. Burdened with student loans but without a complete education to increase their income potential, many of these people are worse off than if they had never attended college at all. Financial education can also help improve this sad situation.
Effective financial literacy education will guide students to make good decisions about:
- Choosing a college they can afford
- How much to borrow for college, from what sources
- How to manage money in college and beyond
- How to repay student debt after college (whether graduated or not)
Couple this with instruction and assistance regarding other aspects of succeeding in college (study skills, time management, relationships, health, etc.), and students will have much better chances of timely graduation, not to mention lesser financial obstacles to future success.
A new resource is available—free—to help students learn what they need to know to survive financially in college, and beyond: myCollegeMoneyPlan.org.
Developed at Wichita State University and funded by a College Access Challenge Grant administered by the Kansas Board of Regents , this online course is aimed at college-bound students, new college students, and their families. The course securely saves personal worksheets and financial calculations, incorporates “game-ification” features, and allows one-click status updates to Facebook and Twitter.
The course is divided into two major Parts. Part 1, designed for those considering college, discusses:
- Exploring College Opportunities, including an interactive worksheet to securely save information on schools of interest.
- Understanding the Costs of College. This module defines common terms and includes a College Financial Planning worksheet to securely save cost information on schools of interest.
- Ways to Pay for College without Borrowing.
- The FAFSA.
- Using Loans to Pay for College.
- Strategies to Repay Student Loans.
- Building Your Financial Plan for College. (This is the capstone module for Part 1 where the student uses the information from the first six modules to craft a practical plan and discover which colleges are affordable based on their own specific resources.)
Part 2 is for students who are currently enrolled in college, especially those early in their college careers. It details “Ten Steps toward Financial Independence,” including: Basic Financial Planning; The Importance of Bank Accounts; Crafting a Spending Plan; Understanding Sources and Costs of Credit; Understanding the Impact of Debt; Credit Reports, Credit Scores, and Identity Theft.
Throughout, the course uses text, photos, graphs, charts, videos, interactive worksheets, and other features to teach fundamental lessons. Hyperlinks are provided to sources of more detailed information for those who may be interested.
As college costs increase, financial literacy education is a real and substantive way that high schools, colleges and others can help students succeed in college, and beyond.
MyCollegeMoneyPlan.org is eager to hear your feedback, and intends to make continual improvements to its online materials. The authors of the course are available to give presentations and workshops for school and community groups: contact email@example.com.
Timothy Hagan, MBA, is the Financial Literacy Project Coordinator , and William L. Vanderburgh, PhD, is the Executive Director of the Office for Faculty Development and Student Success at Wichita State University, Wichita, Kansas.