Require personal finance literacy courses for students

Require personal finance literacy courses for students
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Presidential candidates are calling for free college tuition and student loan program reforms. It’s a strong rallying message, given the fact that some 44 million Americans owe $1.5 trillion in student loans.

While this may play with voters, I wish more of the candidates would cite the need to arm students and their families with the financial skills and knowledge they need to manage student debt responsibly.

Thankfully, the U.S. Department of the Treasury and 21 other federal agencies and the White House have been working as a commission since 2003 to help families become more financially capable. This group recently issued a report with recommendations on how higher education institutions can help students and families better understand and cope with the long-term ramifications of college loans. 

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The report recommends mandatory financial literacy courses for all college students. This is the right thing to do. The U.S. Department of Education should require that all institutions of higher education that receive federal student loans provide this type of substantive education to every student borrower.  

What colleges are currently required to do in this area is clearly inadequate. Waiting until college for this type of training is too late. High schools in every state should require a personal finance course as a graduation requirement. Still, there is compelling logic in requiring college courses in personal finance, when you consider the spotty record high schools have in teaching the subject. Moreover, colleges should respond because they simply could not survive financially without student loans.

College courses could also help to balance inequities in K-12 education; research shows that poorer school districts are much less likely to require personal finance education in high school than wealthy districts.

Students need to learn not only about the loans they take out, but also about budgeting, cost of living and expected earnings for specific majors. As they get closer to graduation, they should learn how to negotiate salaries, understand the value of employee benefits, excel in job interviews, and develop a realistic student loan repayment plan. 

Undergraduates at Champlain College learn all this in a formal, mandatory, four-year program, and I’m convinced it has reduced our student loan default rate since its inception with the class of 2012.

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But we should not let high schools off the hook. Few high schoolers are learning personal finance at home. While nearly 7 out of 10 high school graduates go on to some form of higher education (and less than 60 percent complete their degree in six years), the rest head right into the work world.

Clearly, high school graduates should be capable of managing daily living expenses. Our center has found in three state-by-state report cards (2013, 2015, 2017) that a handful of states earn As, while three times as many states earn Ds and Fs, meaning they are not doing nearly enough to teach personal finance.

Like higher education, the U.S. government has a moral responsibility to do a better job in educating students about their loans. Uncle Sam provides an online portal for beginning and then graduating college students. Based on student feedback, this effort at entrance and exit student loan counseling is not an effective learning opportunity. It is not working.

The federal government should tie loan access to an institution’s results — low student loan default rates, high persistency and college completion rates and successful job placement rates. Institutions with strong outcomes should be given priority.

Most loan default cases involve institutions with low college completion rates, and are very concentrated in the for-profit college industry — for-profit colleges account for 10 percent of college enrollment but 39 percent of the student loan default rate. The government should stop rewarding failure by halting a practice that amounts to corporate welfare payments via student loans to failing for-profit and not-for-profit institutions.

John Pelletier is director of Champlain College’s Center for Financial Literacy. He has served as CEO and chief legal officer and general counsel for some of the country's leading asset management firms, and has extensive experience starting, growing, restructuring and managing businesses.