Financial Literacy: Student Loan Debt, Credit Card Debt,

and RecommendationsSean Gardiner

ED 845

Widener University

Financial Literacy: Do We Need It?

A Better Life?

• “A college education has long been viewed as a ticket to a better quality of life” (Connell, 2008)

• Cost of college and the ensuing debt has turned many students dreams into a nightmare (Sullivan, 2009).

Cost of College

• Over a twelve year period, 1994 – 2005, the cost of college increased at twice the rate of inflation (Graduating with Debt, 2007)

• National Association of Colleges and Employers Survey (Sullivan, 2009)– Only 20 percent of 2009 graduates who've

applied for jobs have been hired, compared to a success rate of 51 percent in 2007

Average College Debt & Unemployment

• College seniors who graduated in 2008 carried an average of $23,200 in student loan debt (Student Debt and the Class of 2008)

• Unemployment climbed from an already challenging 7.6 percent in the third quarter of 2008 to 10.6 percent in 2009 (Student Debt and the Class of 2008)

Do Students Make an Educated Choice?

• Sallie Mae Survey (Connell, 2008)– Post-graduate income was not a factor for 70

percent of students and parents in determining how much to borrow to finance a college degree

• Average Starting Salaries (Weston, 2008)– Liberal arts grads = under $30,000 to start– Psychology majors = $26,000– English majors = $28,000

Credit Card Debt Too?• At the time of graduation (College Debt,

2009)– $12,000-$16,000 in student loans – $2,000 in credit card debt

• More students drop out of college due to credit card debt than to academic failure (Fowles, n.d.)

• Unaccounted for Costs (Sullivan, 2009)– 2005 = $942 for school supplies– 2009 = $2,200 for school supplies

Projected Debt

Can I Work to Help Pay?• 1981 vs. 2006 (Block, 2006)

– 1981• Work full time all summer at minimum wage• Earn about two-thirds of annual college

– 2006• Work full time all summer at minimum wage • Earn less than one-quarter of annual college• Have to work full time for a year to afford one year

of education at a four-year public university • Assumes saving every penny

How Much Will College Cost?

Borrowing is Up!• Increase in borrowing and borrowing more

(The College Student Debt Machine, 2008)

Median Amount of Debt

Socioeconomic Impact

• Can I Move Up the Class Structure?– Family income = $50,000-$100,000

• Borrow nearly $5,000 a year

– Family income = less than $50,000• Borrow nearly $3,900 a year

– Family income = more than $100,000• Borrow $3,710 a year

(Connell, 2008)

Quality of Life

• Average debt for a college graduate– Soared 50% in the past decade, after inflation

(Block, 2006)

• Impact on Quality of Life (Graduating with Debt, 2009)

Financial Literacy

• Weston (2008) recommends:– Payments shouldn't exceed 10% of your

expected monthly gross income once you graduate

– Parents--all your debts (including mortgage payments, credit cards, car loans and education loans) shouldn't eat up more than 35% of your gross pay

– Keep track of your debt—many people borrow from multiple lenders and lose track

Sinclair School District

• NEFE High School Financial Planning Program– Individualizes financial literacy – Makes it relevant through personal

experiences– Students create THEIR budgets, THEIR

financial plan, THEIR saving plan, THEIR investing plan

Sinclair School District• NEFE High School Financial Planning

Program– Students learn to create a flexible, but reality-

based, financial plan based on needs and wants, and goal-setting in Unit One.

– Students learn to refine their choices and track their spending by creating a budget that builds in savings in Unit Two.

– Students learn how they can take some of their savings and grow it through investing in Unit Three.

Sinclair School District• NEFE High School Financial Planning

Program– In Unit Four, students learn the importance of

having a good credit standing so when they apply for a loan they will actually get it and on terms favorable to them.

– In Unit Five, students learn about financial institutions they will have accounts with throughout their lives and teach them about the risks and benefits of credit cards as well as the responsible use of debit cards.

Sinclair School District• NEFE High School Financial Planning

Program– Students learn how to use insurance to

protect what they have in Unit Six,– In Unit Seven students see how a career

choice will impact everything else in their financial lives

Conclusion• Financial Future

– Plan early– Cost of College vs. Intended Career

• Alternatives to 4-year College– Community College (2-year schools)– Transfer to a 4-year school– Public vs. Private

• Literacy Program– Need in k – 12 education

References• Block, S. (2006). Students suffocate under tens of thousands in

loans. Retrieved November 22, 2009, from USA Today.com: http://www.usatoday.com/money/perfi/general/2006-02-22-student-loans-usat_x.htm

• Bodnar, J. (2008). The New Realities of Paying for College. Retrieved November 16, 2009, from Kiplinger website: http://www.kiplinger.com/columns/drt/archive/2007/dt070613.html

• College Debt-how to avoid it, and how to get out of it (2009). Retrieved November 20, 2009, from the Next Student website: http://www.nextstudent.com/articles/college-debt.asp

• Connell, K. (2008). College students: don’t limit dreams with debt. Retrieved December 1, 2009, from The Christian Science Monitor: http://www.csmonitor.com/Money/2008/0915/p14s01-wmgn.html

• Fowles, D. (n.d.). Money and the College Student. Retrieved December 2, 2009, from About.com: http://financialplan.about.com/cs/college/a/MoneyCollege.htm#

References• Graduating with Debt: The biggest threat to young American’s

financial well-being? • (2007). Retrieved December 5, 2009, from Alliance Bernstein

Investments website: http://www.alliancebernstein.com/CmsObjectCDC/PDF/CDC_Brochure_BiggestThreat.pdf

• How Much Are College Students Borrowing? (2009). Retrieved December 1, 2009, from College Board website: http://professionals.collegeboard.com/profdownload/cb-policy-brief-college-stu-borrowing-aug-2009.pdf

• Reducing Student Loan Debt (2008). Retrieved November 20, 2009, from StudentDoc Medical Student’s Resource Guide: http://www.studentdoc.com/student-loan-debt.html

• NEFE High School Financial Planning Program (2009). Retrieved November 16, 2009, from National Endowment for Financial Education website: http://hsfpp.nefe.org/home/

References• Student Debt and the Class of 2008. Retrieved November 16, 2009,

from The Project on Student Debt: http://www.projectonstudentdebt.org/

• Sullivan, B. (2009). College Grad: “I wish I’d gone to prison to prison instead.” Retrieved November 16, 2009, from Red Tape Chronicles website: http://redtape.msnbc.com/2009/05/college-debt-so-crushing-grad-says-i-wish-id-gone-to-prison-instead.html

• The Average Student Loan Debt (2009). Retrieved December 1, 2009, from College Scholarships website: http://www.collegescholarships.org/loans/average-debt.htm

• The College Student Debt Machine: A National Disgrace (2008). Retrieved November 16, 2009, from Tough Money Love website: http://toughmoneylove.com/2008/12/08/the-college-student-debt-machine-a-national-disgrace/

References• Walbaum, M. (2009). College students need to handle debt, credit

cards wisely. Retrieved December 1, 2009, from USA Today website: http://www.usatoday.com/money/perfi/college/2009-08-13-college-students-debt-credit_N.htm

• Weston, L.P. (2008). How much college debt is too much? Retrieved November 20, 2009, from msn.com: http://articles.moneycentral.msn.com/CollegeAndFamily/CutCollegeCosts/HowMuchCollegeDebtIsTooMuch.aspx?page=1