Student Debt: Where States Are Stepping In to Educate Through Financial Literacy Programs

Postsecondary & Workforce

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Recent media coverage of the 2020 presidential candidates’ stances on student debt and postsecondary affordability highlights approaches that target the costs for students through free college proposals and also shines a light on another aspect of affordability — student indebtedness. For many years, states have been developing and deploying different policy strategies to address student indebtedness without waiting for action at the federal level. One such strategy is financial literacy programs, which can focus on general personal finance, while also including specific information on borrowing for postsecondary education.

Based on our legislative tracking, we find some states are incorporating borrower education within the K-12 system, and others are creating education and awareness programs administered by postsecondary institutions. State strategies for providing borrower education can also be designed to focus on borrowers at different points in the borrowing life cycle — such as at the receipt of a financial aid award, at the start of a student’s enrollment or after the student has become indebted.

Here are a few examples of the work states are doing to educate students about borrowing.

In K-12 education:

Nevada S.B. 249: Requires instruction in financial literacy in grades three to 12 that must include certain topics, including postsecondary institutions and college preparedness; career options; financial aid, including the Free Application for Federal Student Aid (FAFSA); scholarship opportunities; and prepaid tuition and college savings programs and plans.

Oklahoma H.B. 1694: Modifies curriculum requirements for student financial literacy and requires instruction on understanding the FAFSA.

Virginia S.B. 1245: Requires financial literacy courses to be taught in middle and high school and to include information about evaluating the value of postsecondary education, the net cost of attendance, potential debt and potential post-graduation earnings.

In postsecondary systems:

Massachusetts H.D. 2840: Creates an institution pilot program that provides students with an estimate of their total outstanding or pending loan obligations.

New York A. 1932: Requires the student aid award letter to include the estimated loan repayment impact, using a standard 10-year repayment term and assumed interest rate on the current amount of outstanding loans — including total expected payoff amount with interest and expected monthly payment.

Texas S.B. 1799: Establishes the student loan default prevention and financial aid literacy pilot program at certain institutions to inform students of different types of financial aid, the consequences of student loans, consequences of certain career choices and strategies for avoiding delinquencies and default.

Utah H.B. 249: Obligates certain postsecondary institutions to annually notify borrowers that they have education loans, direct students to a federal website to track their borrowing and provide information about how to access loan repayment calculators.

Washington S.B. 5100 and S.B. 5022: Subject to available appropriations, requires each institution to provide an in-person financial aid education workshop at orientation or another point early in the academic year.

While the effectiveness of policies like these is unknown, it is important to note that signaling to students about prudent borrowing and cost-to-value for education can influence them beyond what can be measured in dollars. Policies that seek to educate students create consumers who are armed with the information to make better choices for their futures, and this perhaps provides a value beyond any measure of programmatic success.

Author profile
Policy Analyst at Education Commission of the States |

Karole contributes to the work of the policy team with a focus on topics in postsecondary education. Prior to joining Education Commission of the States, Karole worked for the Legislative Audit Bureau, the Wisconsin HOPE Lab and the Institute for Research on Poverty in her home state of Wisconsin. When Karole is not analyzing legislation or preparing data insights, she can be found exploring the state of Colorado and searching for the best vegan food in Denver.

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