The U.S. Department of the Treasury released a new report on behalf of the Financial Literacy and Education Commission that recommends mandatory financial literacy courses for college students.
With the cost of college rising faster than incomes and a staggering 44 million Americans owing more than $1.5 trillion in student loans, there has been growing concern that students and their families are taking on debt without truly understanding the long-term impact.
Indeed, there is a lot of research exploring this national problem: Nine out of 10 parents and students failed a 2018 quiz about student loan debt. Meanwhile, MarketWatch reported that half of college students taking an AIG survey on personal finance basics got two or fewer questions correct. And in a recent survey from the Brookings Institution, less than 30% of student respondents could correctly answer three questions on inflation, interest and risk diversification.
"Helping students and their families avoid the pitfalls associated with financing higher education, and empowering them to make optimal financial choices, should be a priority of all institutions of higher education," the report reads.
The report provided the following recommendations to colleges and universities:
- Provide consumers with clear, timely and customized data on student borrowing
- Engage students in financial literacy classes
- Target diverse student populations via national, institutional and individual data
- Convey the impact that graduation date and college major can have on repayment plans
- Prepare students to meet financial obligations upon graduation
To come to these points, the FLEC, along with the Treasury and Department of Education, reviewed research on financial education and consulted with nonprofits, state and local governments, trade associations, and other private sector entities. For now, these are just recommendations. But they could be a needed step in the right direction, according to the FLEC.
While some institutions of higher education, including Harvard University, already teach these sorts of financial skills, the report highlighted that there's a need for more "effective financial literacy education and resources" across the United States.
"Institutions of higher education play an important role in our society and our economy," and, as such, can "prepare students to make financial choices throughout their lives that enable them to effectively participate in our economy, build wealth and attain their goals."
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