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Congress Can Act to Help Students Navigate College Financing

Imagine making one of the most expensive purchases of your life when you don’t fully understand the terms and true cost. And add to that scenario that you know that you are not alone because most of your peers are just as bewildered as you are.

Jim LarimoreJim Larimore

That’s the painful reality for today’s high school students as they think about how they are going to pay for college.

We know this because we analyzed survey data for students in grades 11 and 12 who recently registered to take the ACT. What we found was that most students, across economic backgrounds and financial categories, have shockingly little knowledge of how the federal government helps students finance their postsecondary endeavors. As student debt climbs into the trillions of dollars, ensuring that young people fully understand the realities of paying for college – and what it means now and in the future – is critical to their economic health.

ACT researchers reached their conclusion by asking students several financial literacy questions, which revealed the following:

· An overwhelming majority (ranging from 73–81 percent across income groups) didn’t know that the government “subsidizes” a borrower by paying his or her interest on existing loans while the student is still in college. Those from the most well-off families performed the best on this question in relation to other income groups, but no one group showed proficiency with the question.

· A majority (67–70 percent across income groups) didn’t know that there is a student loan repayment option that allows students to repay student loans based on how much money they make in jobs after college.

The findings highlight an urgent need for more financial literacy for prospective students, especially considering the economic stakes at hand. We all need to commit to aiding students in understanding that education debt will affect their careers and future life choices.

Most notably, 27 percent of African-American students and 31 percent of those who are the first in their family to go to college anticipate paying for college without any family help. Students in these two groups have historically faced some of the biggest hurdles in earning degrees; they are exactly the students who need the most support in making wise financial choices.

Students in some states may soon be receiving assistance. In Nevada and Oklahoma, lawmakers are trying to introduce lessons in K–12 classrooms to educate them about the Free Application for Federal Student Aid, scholarships and savings programs.

But even understanding how loans work isn’t enough. A recent study examined 455 award letters from colleges and universities that offered an unsubsidized student loan and found that institutions used 136 unique terms for that loan, 24 of which did not even include the word “loan.” The same study found that, out of 515 award letters it reviewed, more than one-third did not provide any cost information to contextualize that financial aid.

As Congress works to reauthorize the Higher Education Act, it should encourage stakeholders in the higher education community to adopt a uniform, understandable format for student financial aid offers, and require such a format for offers that include federal financial aid. Students and their families should be able to easily comprehend the true cost and value of obtaining a college degree.

Policymakers have recently taken heed. We commend Senators Chuck Grassley (R-Iowa), Tina Smith (D-Minn.), and Joni Ernst (R-Iowa) for re-introducing the “Understanding the True Cost of College Act,” a bill that would seek to do just that by requiring colleges and universities to use a standardized template when communicating aid to students and families.

There is one unifying characteristic among college-bound high school students, no matter their economic background: They consider the price of college to be a very important factor in their decision-making, even those whose families are paying for their education and aren’t eligible for financial aid. One in five high school students expect to pay for college on their own and 68 percent have some type of price sensitivity (e.g., Pell Grant-eligible, averse to student debt or self-funded).

U.S. student loan debt now tops $1.5 trillion. The average borrower has accumulated nearly $40,000 in student loan debt, which eclipses credit card debt and only trails home mortgage loans as the largest type of personal debt.

We can’t start soon enough on assisting high school students in navigating the complex web of financing higher education and learning important lessons about how to pay for this investment.

Jim Larimore is chief officer for ACT’s Center for Equity in Learning, where he leads development of programs, partnerships and research to improve college and career readiness, access and opportunity for underserved populations.


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