Prep For Change

Overview

Student loan debt has exploded in the United States and has become a high stakes public policy issue. The debt adds extra pressure to a generation of young adults that are already struggling in our current economy.729 Students that are paying their loans are doing so in place of being able to take out a mortgage or commit to other consumer spending. Many are simply unable to pay back their loans. It impacts all sectors of the U.S. economy and our ability resume strong growth.  Here's a snapshot of the big picture:

  • Average student loan debt for the class of 2011: $27,300 
  • Total amount of student loan debt in 2012: over $1 trillion mark
  • Default rates have risen to 8.8%, ruining the credit of many young adults.

This is not entirely shocking. Research shows that Americans, especially young people, have relatively low levels of financial skills—and that people with a less firm grasp of the basics of finance tend to more likely be highly indebted and to use high cost borrowing.[1]

Current Work

As a result, many have called for a substantial increase in financial education, especially among high school and college students. To complement this education—and to strongly signal that upgrading financial skills is important for all young people—D2D proposes leveraging and updating existing standardized tests. A recent Chronicle of Higher Education article by then Harvard Professor Peter Tufano proposed that the context for math and analytical reasoning problems in college admissions tests could be framed around financial problems.[2] While the exams would continue to test the standard math and critical reading skills, they would do so in financial contexts. Test questions once asking students to determine the rate at which bacteria multiplied in a petri dish might ask about721  the rate credit card or student loan debt was increasing. If this were the case, test prep organizations, students, and parents could be motivated to become more familiar with financial concepts and to frame more questions in personal finance terms. This could reduce the anxiety many young people feel around financial concepts and encourage them to recognize the important role personal finance plays in their lives at a time when they are making critical decisions about their financial futures. 

[1] Annamaria Lusardi and Peter Tufano, “Debt Literacy, Financial Experiences and Overindebtedness.” NBER Working Paper. (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1366208)








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Prep for Change main contact: Joanna Smith-Ramani