When most students take out loan after loan to pay for college, they probably have no idea how much higher ed is actually costing them. Well, until the bills start to arrive four years later.
A college education is expensive but it’s unfair to allow students who aren’t even in their 20s to make such a large financial decision — especially if they don’t understand how to handle money. In a 2012 study, about 29,000 American 15-year-olds took a test that measured their ability to manage money and make sound financial decisions, and only one in 10 earned a top score. Meanwhile, 17.8 percent didn’t even have what is considered a basic understanding of financial literacy.
This is very expensive problem — and one of the reasons why the national student loan crisis has ballooned to a staggering $1.2 trillion. (On average, student loan debt is $29,400 per borrower.)
However, one school has come up with a brilliant — and surprisingly simple — solution. Since the 2012-2013 school year, Indiana University has sent students across its seven campuses a few letters via email about the loans they’ll be taking out for the next year, Bloomberg reports.
The idea is this: If you warn a student once in awhile about how much he or she owes, they’ll realize the financial commitment they’ve made, and perhaps learn how to borrow more responsibly.
Nursing student Natalie Cahill, 22, decided to search for more scholarships after seeing her debt letter from the school. “When you take out loans for the year, you just see a smaller number than the grand total,” Cahill told Bloomberg. “Seeing the letter definitely put things into perspective.”
So far, the plan to boost financial literacy is working wonderfully. Federal Stafford loan disbursements to the university have reportedly dropped 11 percent, or $31 million, compared to the national 2 percent drop.
“We are having more contact with the student where they can say ‘I don’t want this,’ or ‘I want less,’” Jim Kennedy, the associate vice president and director of financial aid Indiana told Bloomberg. “If they know at all times their debt, and the repayment, it helps with a lot of planning.”
Until financial literacy 101 hits every college campus, Indiana’s efforts to teach its students fiscal responsibility gets an A+ from us.