The student loan crisis is back in the news after presidential candidate Sen. Elizabeth Warren, D-Mass., proposed a sweeping plan last week to forgive up to $50,000 of debt for every college graduate earning less than $100,000 per year. The plan was met with its fair share of criticism for its $640 billion initial price tag and also the fact that the savings would mostly go to the top 40% of households according to a Brookings Institution study.
Yet, one question consistently missing from any discussion of student loans is: Why? Americans owe $1.56 trillion dollars of student loan debt according to the Federal Reserve. The average borrower from the class of 2017 owes $28,650 according to the Institute for College Access and Savings. Why do they owe so much?
The answer is a lack of financial literacy, reinforced by an idealized culture encouraging kids to chase their dream schools. One solution would be adding a finance requirement for graduating high school, as 19 states have already done in their public schools.
Simply put, it’s nearly impossible for a 17-year-old to comprehend the financial repercussions of student loans, especially amid the rush of excitement that come with college acceptances. Since their elementary school days, students are nearly brainwashed into thinking that they too can attend expensive, elite colleges no matter what their financial circumstances.
As such, generations of students have graduated owing astronomical amounts of debt, sometimes as high as $200,000 for an undergraduate degree at a private university. Yet, the realities of interest rates do not fully sink in until their first loan payment is due the month after commencement.
This situation is amplified by the fact that the vast majority of states have no financial literacy curricula in their public schools whatsoever. I certainly speak from experience, having attended an elite college, the University of California, Berkeley, without any idea what interest or even credit was until I applied for my first card at the age of 22.
Fortunately, that’s starting to change. States are progressively starting to incorporate financial literacy in their curricula with some positive results. The Wall Street Journal highlighted a case in Kentucky in March:
“The 18-year-old, who takes home about $600 a month as a shift manager at a Chick-fil-A, now aims to attend a local community college for two years before transferring to a four-year state university. He expects this will help him avoid loans.”
Kentucky passed its financial literacy requirement last year and established a commission in January that will operate entirely on private donations to review the curricula. It’s encouraging to see a state practice what they preach with financial literacy by being fiscally responsible in implementing the requirement.
That’s not to say that adding financial literacy to high school will be a cure-all for the student loan crisis. Critics like the Financial Access Initiative Timothy Ogden have astutely pointed out that true financial literacy cannot be boiled down to memorizing the right answers on a multiple-choice test. However, that is hardly a reason to squelch a new course in its infancy. Educators and policymakers should continue to study and implement engaging lessons to improve financial literacy and, ultimately, help them make smarter choices when taking out student loans.
Casey Given (@CaseyJGiven) is a contributor to the Washington Examiner‘s Beltway Confidential blog. He is the executive director of Young Voices.
