Mandates Matter When it Comes to Borrowing for College

Financial Education Improves College Borrowing Options

Date: December 4, 2018
Contact: Paul Golden 303-224-3514, [email protected]

DENVER — At a higher education financial capability forum today, the National Endowment for Financial Education® (NEFE®) released research findings reinforcing the benefits of financial education—as provided through state mandates—and how it leads to a shift in the ways in which families borrow for college. The NEFE-funded study, performed by investigators at Montana State University, finds that students in states where financial education is required to graduate from high school make better financial aid decisions as college freshman, moving from higher-cost to lower-cost borrowing options. Mandated financial education increases applications for grants and federal aid, keeps overall borrowing balances down, and decreases credit card balances.

“It’s not a question if students should borrow to go to college, but rather the method in which they borrow and how much,” says Billy Hensley, Ph.D., president and CEO of NEFE. “The right amount of loans facilitate access to higher education and can ensure students graduate college and move into higher-paying careers. But too much debt, and debt that comes as a high cost of borrowing, can significantly impact the success in paying back loans.”

The study, conducted by Carly Urban, Ph.D., and Christiana Stoddard, Ph.D., at Montana State University, concludes requiring financial education in high school at the state level leads to better borrowing behaviors. Students with lower expected family contributions (EFC) tend to carry smaller credit card balances and are less likely to work during their freshman year when they have been exposed to a mandate. Higher-EFC students take on smaller amounts of private loan debt. Additionally, with access to financial education, there is a notable increase in applications for financial aid and in acceptance of federally subsidized Stafford Loans.

“The reality is that few young adults are benefiting from access to financial education and some are further hindered by limited support from their parents. It’s important to broaden support networks in the home and at school to help students make better borrowing decisions,” says Urban.

Managing rising education costs remains a challenge for families. A recent survey conducted by The Harris Poll on behalf of NEFE finds that three quarters (76 percent) of American parents with children under the age of 18 say they are regularly saving for college or post high school education. Yet, nearly two thirds (63 percent) of parents who expect their children to pursue college/post high school education say they plan to rely on grants/scholarships to pay for education costs, and about one third (34 percent) say they will rely on loans. The survey was conducted online in October 2018.

According to the Council for Economic Education 2018 Survey of the States, just 17 states require high school students to take a class in personal finance. While mandates are relatively easy to track, implementation varies widely and changes frequently. Hensley says research on financial education mandates is only as good as the information on the mandates and course offerings themselves.

“Regretfully, we don’t have a good legacy of giving a home to personal finance education in high schools. It’s not the same as math or literature. You may find personal finance under social studies or business courses. It needs to be better defined,” says Hensley. “If we don’t know the exact nature of how mandates are implemented at the state, district and local school level, we cannot offer meaningful evidence on the effectiveness of financial education.”

Read more on the better borrowing research.

About the Montana State University Study
The study uses a difference-in-difference strategy to determine the causal effect of financial education graduation requirements on postsecondary financing decisions using data from the National Postsecondary Student Aid Study (NPSAS). The NPSAS is a nationally representative study of students enrolled in institutions of higher education. Results use data from the 1999, 2003, 2007 and 2011 waves of the survey. The sample is restricted to U.S.-born students between the ages of 17 and 19 in their first year of higher education who graduated in the same calendar year or one year prior to enrollment. Students who did not complete a traditional high school degree were eliminated, resulting in a sample of 44,729 students. The analysis is supplemented with data from the Current Population Survey (CPS), the Integrated Postsecondary Education Data System (IPEDS), and the Montana University System (MUS). More information can be found in the full report here.

The Harris Poll Survey Methodology
The survey was conducted online within the U.S. by The Harris Poll on behalf of NEFE October 9-11, 2018, among 648 U.S. adults ages 18+ who are parents of kids under age 18. Results were weighted for age within gender, region, race/ethnicity, income and education where necessary to align them with their actual proportions in the population. Propensity score weighting was also used to adjust for respondents’ propensity to be online. Respondents for this survey were selected from among those who have agreed to participate in online surveys. The data have been weighted to reflect the composition of the adult population. Because the sample is based on those who agreed to participate in our panel, no estimates of theoretical sampling error can be calculated. A full methodology is available on


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