Student Loan Discussion Neglects Personal Finance Principles

The need for basic finance training
Josefa Ndiaz, Unsplash

Why fix a problem when you can just throw other people’s money at it?

Rather than address the root of the problem causing student loan debt — a lack of personal finance education — the government is ready to slap a bandaid on it and ignore the inevitable future wounds that will continue to be created by financially uneducated students.

Last week, President Biden promised student loan relief of $10,000 for individuals making under $125,000 or for married couples making under $250,000. By canceling the student loan debt, the government has set a dangerous precedent. Going forward, students will continue to borrow money they can’t afford to pay back, knowing that the government will bail them out. 

Proponents of loan forgiveness commonly cite the 2007-2009 financial crisis when the government bailed banks out of their bad loans. If billion-dollar banks got a government handout, why shouldn’t students be entitled to one too? But here’s the difference: bank bailout money came with banking reform and regulation. Because student loan relief provides a bailout without the necessary reforms, the same problem will continue to repeat unless the government fills the gaps in public education.

In spite of recent polls that show that 90% of Americans over age 45 think financial education should be mandated nationwide, most students are currently not being taught any personal finance lessons. Public education is the primary choice for schooling in the United States for 49.5 million Americans, but only recently have you seen states, such as Texas, Florida, and Michigan begin to mandate public finance education in schools. There has never been a federal test requirement for students to show mastery of basic financial concepts like credit scores, interest rates, loans, and budgets.

In the absence of substantial personal finance content in public schools, private foundations and industries have stepped up to the plate to develop this material. Instead of using tax dollars to pay off billions of dollars of student debt, the government could put that money toward helping  states develop personal finance education programs, hire qualified teachers, and establish better private-public partnerships designed for students to practice good financial habits.

The government ought to fix the student loan problem by investing in personal finance education. Perhaps this will limit the number of unwitting students who graduate with degrees in unprofitable disciplines and no hope of paying off their loans. 

Unfortunately this scenario is far too common. The average monthly student loan payment for four years of college room and board amounts to $1,200 assuming a standard loan rate of 6% over 10-years.The median expected wage for students graduating with a liberal arts degree is $42,000 (about $2,800 per month after taxes). This leaves $1,600 for housing, groceries, and any other bills — a struggle when the median monthly rent in the U.S. is currently $1,827.

This calculation took me under three minutes to do, but many college students wouldn’t even know where to start — most of them never learned. Public education is at fault, and it is time the government addresses the real problem. Students need basic financial training. 

Danielle Zanzalari
Danielle Zanzalari is an Assistant Professor of Economics at Seton Hall University. She is a personal finance expert whose lesson plans are currently used to teach financial literacy in high schools around the country.

The views expressed in this article are the opinion of the author and do not necessarily reflect those of the Chalkboard Review team.

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