Across the headlines, in almost any newspaper, families can find articles about the student loan crisis. For the current Millennial having student loan debt has become part of the new norm. As each year passes, I often wonder would Millennials change their student loan decisions if they could.
Included in this article are the policy briefs of Global Financial Literacy Excellence Center (GFLEC). The brief uses data from the FINRA Investor Education Foundation’s 2015 National Financial Capability Study. I wanted to share this information because it sheds some light on student loan decisions and the accumulation of loan debt. According to their research, many borrowers felt that they did not have enough financial literacy information before taking on their current student loan debt. In fact, 54% of their students surveyed did not even try to figure out how much their monthly payment would be before signing for their student loans. Interesting, 70% of these same students said if given the chance that they would have borrowed differently or were still unsure of the decisions.
Credit Union Student Choice also did a focus group with recent college graduates, of which many had borrowed money from a credit union to supplement the cost of college. One of the topics discussed was student loan debt. Although the focus group was small, it did lead to the conclusion that many of the borrowers did not feel that they had adequate college planning and funding information prior to making their college and student loan decisions. Many of borrowers relied on parental directives to make their college funding decisions. This leads to Financial Abstraction for the borrower or not really knowing what you are spending to obtain your degree.
Impacts Financial Future
Most Student loan borrowers underestimate the financial burden of their total student loan debt and how decisions will impact their financial futures after graduation. Currently, there are 43 million student loan borrowers. According to the NFCS Data, student loans are the fastest growing form of debt in the U.S. This means many graduates will be starting the work force with a student loan. So instead of saving for their future financial goals, they will be paying off student loans. Having this burden has an overall effect on the economy because the student loan borrower may delay home purchase, marriage and children.
Fixing the Problem
I have often spoken about viewing the college education process from an investment viewpoint and looking at the outcome of college. Our approach has always been to help students envision their quality of life at age 25. This would include education requirements, job placement requirements and life style decisions.
The statistics above identify the lack of financial literacy in this very important and expensive process. It is often difficult to find the appropriate advice. The current colleges and student loan services can only offer payment options. Both of these resources are not able to provide the personal financial insights that are required to make the best student loan repayment decision.
The EFC PLUS software generates a more comprehensive view of the cost of college. Student loan borrowers can get a better view of their education debt both incurred and projected. In addition, College Affordability LLC is developing a training program for financial advisors to become more knowledgeable in this underserved area of financial planning.
As with any crisis, we must discover the solution for the problem and prevent the growth of that situation. Current student loan borrowers should take notice of their prior peers and better understand the financial consequences associated with their educational goals. Our recent article titled, “Student Loan Borrowers: Preventing the Student Debt Problem”, gives additional insights into possible solutions. Hopefully, when borrowers receive better knowledge in the beginning of the process, the question of millennials wanting to change their student loan decisions will no longer be an issue.