Why Financial Education Matters for Student Loan Borrowers

Ever felt that tight knot of anxiety when looking at your student loan statement? Or maybe you’ve breezed through the repayment process without a hitch? Whichever camp you fall into, it’s clear that student loans can be a source of worry or confusion for many. A recent study from the University of Missouri highlights the crucial role of financial education in managing student debt effectively. Let’s get into it, shall we?

Understanding the State of Student Loan Stress

Think about this: about one in every four American adults currently has student loans to pay off. That’s a lot of people, right? And what’s even more concerning is that many of these individuals may not have the financial literacy to manage this debt successfully.

Unpacking the Study on Student Debt Management

This is where the study led by Lu Fan, an assistant professor of personal financial planning at the University of Missouri, comes in. The study found that, despite the high numbers of borrowers, there is a glaring lack of adequate education to help these individuals manage their student debt. Now, that sounds a bit concerning, doesn’t it?

The Scope of Financial Education and its Impact

Here’s an interesting statistic for you. According to Fan, 55% of borrowers expressed worry about their student loans, but only 30% said that they had received financial education about repaying their loans. Even more revealing, only 40% of borrowers reported having financial influence from their parents. Clearly, there’s a gap in knowledge and support here that needs to be addressed.

Exploring the National Financial Capability Study

For their research, Fan and her colleague Swarn Chatterjee, a professor at the University of Georgia, used the National Financial Capability Study dataset. They looked at responses from over 2,600 people who had a student loan, were aged between 24 and 65, were no longer students, were employed, and were the primary decision-makers in their households.

What they found was quite enlightening.

Gender, Completion Rates, and Their Relation to Loan Stress

Women, it seems, were less likely to be late on student loan payments but were more likely to feel worried about their student loans. Men, on the other hand, were less anxious about their debt and more likely to submit payments late.

Here’s another interesting finding: people with loans who did not complete college were more likely to be worried about paying off loans than those with degrees. That’s a piece of information worth pondering, isn’t it?

Looking Towards Better Financial Education

According to Fan, these findings underline the fact that borrowers aren’t getting the information they need to make the best financial decisions. But whose responsibility is it to ensure that they do? Fan suggests that policymakers and loan providers should play a larger role in educating borrowers about managing debt and understanding the various repayment options available to them.

The Power of Financial Literacy

Student loans can be daunting, but they don’t have to be a source of unending worry. With adequate financial education, borrowers can not only understand their repayment options better but also make informed decisions that can reduce their loan-related stress.

So, whether you’re a student loan borrower, a parent, an educator, or a policy maker, remember this: financial education isn’t just about numbers and spreadsheets. It’s about empowering people to take control of their debt, leading to healthier finances and happier lives. Now, who wouldn’t want that?

Lu Fan, Swarn Chatterjee. Financial Socialization, Financial Education, and Student Loan Debt. Journal of Family and Economic Issues, 2018; Link