Treasury Department recommends ‘mandatory’ financial-literacy courses for college students


Colleges should provide lessons in mandatory financial literacy courses and financial-aid letters that itemize attendance costs, according to a new report from a federal government commission.

The Financial Literacy and Education Commission — a group including the Treasury Department and the Department of Education — said such best practices are especially important now that Americans have become bogged down in $1.5 trillion in student-loan debt.

“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,” said the report released Friday. Excessive debts can stunt budding careers and possibly cut into future savings, the commission said.

Here are some of the other recommendations in the report:

• Financial-aid offer letters should have “an itemized and sub-totaled cost of attendance” that discusses the direct costs paid to colleges for things like tuition and other indirect costs. The costs should also be calculated “after grants and scholarships are applied.” Currently, “award letters are sometimes unclear, leaving students with inadequate information to make financial decisions.”

• There should be a “broad adoption” of debt letters in higher education. The letters tell student borrowers the debts they’ve incurred annually and what their expected future repayment amount will look like. Debt letters are already required in 12 states. The letters should spell out repayment options, estimate how much interest will pile up if payments are deferred and provide average entry-level salaries for graduates with the same sort of major.

• Financial literacy courses should be required. If classes are optional, they might not “reach students who may be unaware of them or who do not value the benefits of financial education.” The report admitted it could be tough finding the right teachers because the subject isn’t a focus at most schools. Alternative instructors could be trained students, financial-aid officers and outside financial professionals, the report said.

Mark Brown, chief operating officer at Federal Student Aid, an office of the U.S. Department of Education, said, “The Department is committed to improving student financial literacy so students and their families are empowered to make better and more informed decisions about their education.”

He added, “The department also plays a critical role in financial literacy and that is why we are implementing the Next Gen FSA initiative and modernizing the user experience to include personalized tools regarding student borrowing and financial decisions.”

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The report comes while many Americans are struggling with their debt obligations — not to mention a grasp of financial literacy basics. A mere 28% of students could correctly answer three questions on inflation, interest and risk diversification, it added. Students had slim understanding of their education loans, the report noted.

That dearth of knowledge is on display elsewhere. About half of college students in a 25,000-student survey answered two or fewer questions correctly on a recent six-question quiz.

Some higher education institutions are already teaching financial skills — including Harvard University. Billy Hensley, president and CEO of National Endowment for Financial Education, said there’s national momentum for teaching more financial skills on campus. Apart from higher education, there are 19 states with financial literacy education requirements for kindergartners through twelfth graders, he noted.

Some higher education institutions are already teaching financial skills — including Harvard University.

Lawmakers required the Financial Literacy and Education Commission, a 16-year-old entity, to report on best practices for college financial literacy in connection with a 2018 law amending parts of the 2010 Dodd-Frank Act.

Treasury Secretary Steven Mnuchin said, “It is vital for our higher education institutions to offer students the resources and information they need to make financial decisions that best fit their needs and career aspirations.” The report, according to him, was a “great guide for colleges and universities to help them improve their students’ financial outcomes.”

Rachel Fishman, deputy director for higher education research at the think tank New America, said the recommendations were a good step, but only went so far.

The report reflected a “general sense there’s a student-loan crisis going on” — and it’s hitting some segments harder than others, such as African-American borrowers.

A focus on financial literacy was hardly a cure-all for the woes around the cost of college. The price of college, she said, “is too damn high.” Even without a financial literacy program, Fishman said many students were already making informed decisions, but were still forced to take on debt.

Fishman was also encouraged by the report’s discussion of clear award letters. Still, an even better solution would be an award letter in a standardized template which could let students make true cost comparisons between schools. A pending federal bill would require standardized award letter templates, she said.

Hensley was encouraged by the report. “A lot of institutions need a road map to follow,” he said. Many schools understand at a theoretical level why it’s important for their students to have financial skills, “but if you have a clear road map to follow, or checkpoints to follow, there’s accountability there.”