October 22, 2021

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Financial Literacy Education and Paying for College

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President Biden issued a proclamation deeming April 2021 as National Financial
Capability Month. This communication emphasizes the benefits of financial
capability, the value of financial literacy, and the importance of access to
financial resources. Understanding personal finance topics such as savings,
loans, and investments is seldom a straightforward task, especially in the
context of paying for college. Subjects, such as borrowing, can be complex for
incoming postsecondary students to fully grasp. With the notable year-over-year
rising cost of pursuing higher education,
some students may be left with a large amount of debt and regrets about how
they chose to finance their college education. According to Teach for America,
a recent survey suggests that 53% of college students said that they felt less
prepared to manage their money than to face any other challenge associated with
college. So, how can postsecondary student’s financial literacy be improved and
regrets about financing their education minimized? One solution to consider is
effective financial literacy education.

According to the Financial
Literacy and Education Commission’s 2019 Best Practices for Financial Literacy
at Institutions of Higher Education report, effectively engaging students and providing clear, timely, and
customized information about student borrowing could be keys to reducing poor financial outcomes.
Individuals who receive personal finance education in line with their goals may
be more likely to retain the information and use it to make informed decisions.
Capitalizing on motivation by providing relevant personal finance education to
students at postsecondary institutions makes it more likely that they will put
that knowledge to good use. In addition, this report puts emphasis on the
significance of choice of major and graduation. Early decisions, like choosing
a major, and equating that field’s expected return with the cost of attendance
could save some student loan borrowers from default.

Many
institutions of higher education already have some type of financial education
initiatives in place. At my school, the University of Central Florida, there is
a program called Centsible Knights. In addition to having a clever
name, this program provides students with the information that they need to
enhance their knowledge of personal finance and to make strong financial
decisions. The scope of topics covered during meetings range from basic
borrowing information to how to file taxes and invest early. However, the
burden for providing effective financial literacy education doesn’t just fall
on schools. Organizations like the Higher
Education Financial Wellness Alliance

(HEFWA) bring together professionals and seek to inform national conversations
and public policy in the financial wellness field. HEFWA’s efforts are
dedicated to helping develop strong financial habits for students by promoting
responsible college financing and giving students skills they need to succeed
financially while they are in school and after they have graduated.

As
an intern for Federal Student Aid (FSA), I have had an inside look at some of
the tools and resources that the agency has to offer. FSA is doing their part
to provide high-quality information to assist students in more informed
decision-making surrounding financing their college education. A few of these resources
include:

College Scorecard: The U.S. Department of Education’s
College Scorecard is an excellent way to compare colleges and universities to
one another to find a student’s best fit. Using the College Scorecard, you can
compare side-by-side information on costs, graduation and retention, financial
aid, and many more statistics for each college. The information is
comprehensive, and the scorecard even lists fields of study and expected salary
after completion.

Annual
Student Loan Acknowledgement
: Whether you are a first-time federal
borrower or have existing federal student loans, knowing your balance, and understanding
your responsibility and repayment options is important. Loan acknowledgement is
a good reminder that borrowing has a direct impact on one’s financial future.

Loan Simulator: Sometimes understanding repayment options
and making decisions about federal loans can be confusing or difficult for
borrowers. FSA’s loan simulator is a tool that can help borrowers make
decisions about repayment strategy and whether to consolidate their loans.
Also, it has a feature that individuals can use to simulate borrowing more
federal funds. This can be helpful for students who need to borrow additional
money for education or someone who might be seeking to return to college.

Overall, choosing
how to pay for college can be tricky, and unfortunately there is not a one size
fits all solution. However, there are many high-quality resources available to
students to help them make strong financial decisions. Places like FSA’s
StudentAid website can help with
understanding costs and federal borrowing, and many colleges and universities
have financial wellness resources available to students who attend at no
additional cost. It’s up to each student to take ownership of their finances
and make informed decisions on how to fund their education. Developments in the
field of financial literacy education are made frequently, and I am personally
excited to see how these resources continue to develop and provide guidance to
students.

Sean Cannon is an intern for Federal Student Aid under
the Virtual Student Federal Service program. He is currently a senior economics
student at the University of Central Florida and will be pursuing a Master’s in
Applied Economics at Florida State University.

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