Treasury's 6 Recommendations for Improving Student Financial Success

Collectively, more than 43 million individuals in the U.S. owe more than $1.5 trillion in student loan debt. The U.S. Department of the Treasury recently released a report with recommendations for higher education schools to offer financial literacy and resources to help students with decision making surrounding college costs and debt. We reviewed the report and boiled it down to the top 6 recommendations in regard to teaching financial literacy and supporting debt management.

Best Practices for Financial Education at Institutions of Higher Education was created on behalf of the Financial Literacy and Education Commission (FLEC) which includes the heads of 19 important federal agencies including the Department of Education, Department of Health and Human Services, and Consumer Financial Protection Bureau. Here are the top 6 recommendations.

1. Broader Adoption of State-Based Student debt letters

Currently there are 13 states that mandate student debt letters. FLEC suggests state lawmakers and higher-ed institutions consider a more broad adoption of debt letters that include a host of best practices to help empower students to achieve better outcomes including strategic degree choices, maximizing credits, and reducing borrowing.

• Provide key info tailored to the student including:
  - Borrowing levels to date
  - Average borrowing level for peers
  - Estimated monthly repayment amount at time of graduation
  - Estimated accrued interest if student defers interest payments
  - Tuition plan payment options
  - Average entry salary of graduates in the student’s major or concentration

• Make it easy for students to find additional information and support via links to websites and resources, and providing contact numbers. They recommend brevity in this section of the debt letter to ensure students are not distracted from the relevant financial information.

• Time the issuance of debt letters when students are motivated to act, such as before they register for classes and before the coming semester’s deadline to change their financial aid and borrowing levels.

• Pair debt letters with other financial literacy strategies that encourage and guide students while also promoting ways to graduate on time and how to earn incentives if they obtain financial counseling.

2. Require Financial Literacy Courses

Currently, the Department of Education requires students to go through entrance counseling before they receive their first Direct loan and exit counseling when they leave or graduate. FLEC recommends requiring financial literacy courses, taught by well-trained peer educators, and integrated into a core curricula that goes beyond entrance and exit counseling.

They suggest an expansive array of topics to help students understand loan repayment options and obligations, build a budget to set a repayment goal, identify and connect with their student loan servicer, and assess the costs and benefits of graduate and professional studies.

FLEC believes schools should develop standards to ensure financial educators know their content and how to deliver it effectively. 

The last step would be to evaluate the financial education program’s effectiveness through measurement methodologies and metrics.

3. Improve Advising

Ensure student advising includes information on loans, majors, and obstacles to graduation. Also, make emergency aid available to help bridge the gaps between financial aid and the resources students need to com­plete their education.

4. Know the Population You Serve

Students’ personal and financial circumstances and goals can be better understood by using national, institutional, and individual data. Using these types of metrics, consistent with appropriate privacy practices, will help schools to better understand the population they serve.

5. Provide Incentives

Everyone loves incentives! FLEC suggests using strategic incentives to spur students toward completion, including reduced summer tuition and extended enrollment periods.

6. Improve Financial Aid Offer Letters

The intention of an award letter is to spell out the details of the financial aid packet. Yet they can be unclear or confusing for the student, making it difficult for them to understand the ramifications of financial decisions they’re making. One suggestion is to include more details surrounding cost of attendance after grants and scholarships are applied, as well as including direct costs paid to the colleges for things like tuition and indirect costs.

Interesting Tidbit

It’s interesting to also note that apart from higher education, the report references 19 states with financial literacy education requirements for K-12. However, based on a recent study of 11,000 high schools, only 16 percent of high school students were required to take financial education. Yet, “Research shows that students from states with financial education provided in high school had higher credit scores and lower delinquency rates on consumer credit as they reached adulthood.”

Find additional resources at our Persistence and Completion Strategies page.

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