This State Sees Student Debt as Gateway to Financial Literacy

By Dan Kadlec

March 14, 2018

New FinLit approach in Iowa: student loans

With the effort to require personal finance instruction in schools at something of a stalemate, the Iowa State Senate last week took a different approach. Why not zero in on one key aspect of financial literacy and see if that gets any traction?

The state senate passed a bill that speaks directly to our eye-popping student debt issue. The bill, which has been sent to the Iowa House for consideration, would require universities to educate students about their major’s employment rate, placement rate, and starting salary. It would also require public universities to create a reasonable path to graduation in three years.

It’s anybody’s guess if this narrower approach to financial literacy will go anywhere. “I frankly find it inappropriate that the legislature should attempt to micromanage curriculum matters,” Herman Quirmbach, Democratic state senator from Ames, told The Gazette. He and others argue that the universities already have financial literacy programs, and career and financial counselors. So, good luck with that, these critics are essentially saying.

Yet none of the state universities embrace a complete financial literacy program; student debt seems to be the one area that gets the most acceptance just about everywhere. Nationwide, student loans total $1.4 trillion. This burden is a drag on the economy as young people put off marriage, buying homes, and having children. The debt prompts many to curb spending on movies, clothing, healthcare, restaurants and cable.

The three-year path to graduation is one way to…

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…take a bite of the student debt problem, and it could be made all the more practical through online and summer courses. An expedited degree may not provide the university experience that young people envision. But for the millions going into debt for their degree the prospect of borrowing 25% less certainly holds allure.

An undergraduate at a private four-year university would save a staggering $44,820, according to College Board averages. That is enough to pay off the average student indebtedness of $30,100 and have enough left over to buy a car. An in-state student at a public university would save $20,770.

At places like Johns Hopkins and Duke early graduations are up 20% to 30%. That figure would be even higher if students—before borrowing—understood how difficult these loans are to repay. Student loans present an urgent problem. That should make them easier to address than, say, spare retirement savings, inadequate emergency funds and poor budgeting. We shall see if the Iowa House agrees.

Progress in the States, or Roadkill?

Kentucky Education Commissioner Stephen Pruitt says it is important to stop treating financial literacy as a privilege and start treating it as an essential skill. That’s what he told the State General Assembly last week, and now the Kentucky State Senate is considering a House bill that would require high school students take a financial literacy class.

Kentucky’s Pruitt says FinLit “essential”

Also offering comments at the session was Elizabethtown High School Educator Alex Todd, who has been teaching a financial literacy elective for two decades. “What we have been expecting for the last 40-50 years is without the knowledge, they’re going to go out and behave responsibly,” he said of students. “We have to come back and teach the knowledge and then the behavior will follow.”

While this discussion it is encouraging, it is anything but decisive. Financial literacy bills in the states are more often left for dead than bugs on a windshield. Last week in Florida, a bill that would have required a half-credit high school financial literacy requirement (and which had been in the works for five years) was postponed indefinitely and remove from consideration.

In Pennsylvania, Rosemary Brown, a republican state representative, introduced a bill last year that would allow students to take a financial literacy course in place of the social studies, family and consumer science or math graduation requirement.

“Now more than ever, it is critical that individuals save money, make sound financial decisions, grow their assets and develop a secure financial future for themselves and their children,” Brown wrote in a supporting letter. “In order to help young people acquire the knowledge necessary to make wise financial choices as adults, I believe high school courses in personal financial literacy should be encouraged.”

Her bill cleared both the House Appropriations and Education committees and passed the full House with one dissenting vote before landing with the State Senate in November, where it has gotten no attention.

More on financial literacy in the states:

What Progress? 20 Years of Financial Literacy

Signs that Financial Education May Bubble Up

These States are Boosting Financial Education Below the Radar

These States are Moving Forward on Financial Literacy in School

Fed Up with Poor Financial Literacy Rankings, Arkansas Gets Serious

States That Make The Grade in Financial Literacy

More on student loans:

Student Loan Payback Assistance Will Be the Next Big Benefit

The Next Big Thing in Workplace Financial Education: Help with Student Debt

Amid Crippling Inaction at State Level, Signs that Financial Education May Bubble Up


Posted in Policy & Government on March, 2018