Research shows that student financial wellness programs can lower student loan defaults, decrease financial stress, improve academic performance and graduation rates, and teach students how to manage their finances for a lifetime.
Student financial wellness goes beyond tuition and loans. It also includes attitudes, behaviors and financial knowledge. Financially well students are aware of their financial state while budgeting, saving and managing finances to achieve realistic goals.
A study by the Financial Industry Regulatory Authority found that mandated financial education for college students had many positive effects. Credit scores rose, delinquencies lowered, more money was saved, less debt was incurred, and students made fewer compulsive purchases.
Student financial wellness programs can improve key components of student financial health by:
1. Lowering Student Loan Defaults
Student financial wellness programs can help reduce default rates by teaching students about student loans and their consequences before they choose to borrow money. A report by the Financial Literacy and Education Commission shows that students often do not know what they are getting into when they take out a loan. They also don’t understand that certain actions that stop a loan from going into default doesn’t stop the interest from growing.
A strong student financial wellness program can help students:
- Understand financial aid eligibility and the paperwork involved
- Learn about funding options beyond student loans
- Consider career salaries compared to student loan repayment
- Create a financial plan that fills in any gaps between current cash flow and projected education costs
- Understand how student loan repayment works and what happens when dropping out of school
- Use tools to help visualize how student loan debt will impact their future financial health
2. Decreasing Financial Stress
Studies show that the majority of college students experience financial stress no matter what the state of the economy.
The Student Financial Wellness Survey1 found that:
- 65 percent worry about paying tuition
- 1 out of 4 students do not know how they will pay for the following semester
- 53 percent worry about meeting monthly obligations
- 77 percent have run out of money in the past year, with 34 percent running out five or more times
- 58 percent feel they borrowed more student loan debt than they expected
- 68 percent are not confident they will be able to pay off their student loan debt
Financial stress has a direct effect on the physical and mental health of students. Students dealing with stress often employ unhealthy coping strategies that erode physical and mental health even further.
Adding a financial component to a university’s wellness offerings will help students manage their financial issues so they can reduce stress and feel more secure about their future. For instance, financial wellness can teach students about debt and how to keep debt from taking over their budget. Without debt, students will be more able to build a stronger financial future and create strong financial habits.
Students with access to financial wellness programs also learn to:
- Develop and stick to a budget
- Get financial coaching
- Understand financial aid and student loans
- Make decisions about whether to take out a student loan and what size student loan makes sense
- Learn new financial habits
- Save for emergencies
- Understand credit cards
3. Improving Academic Performance and Decreasing Dropout Rates
One way that student financial health affects the bottom line of colleges and universities is dropout rates. Less than 60 percent of students who start at a four-year school complete their degree within six years, according to the National Student Clearinghouse Research Center. That number drops below 40 percent at two-year community colleges. Many dropouts have amassed student loan debt they cannot pay due to a lack of earning power, leading to student loan defaults.
Because of financial stress, nearly a third of students neglect their studies, putting them on a path that can ultimately lead to dropping out of school.
The dropout rates for college students, especially minorities, first-generation college students and lower-income students, tell an alarming story:
- Only 11 percent of students in the bottom quarter for income earn a bachelor’s degree within six years, compared to 58 percent from those in top quarter for income
- Less than one third of students who drop out return to college to earn a degree
- College dropouts are twice as likely to be unemployed
- One quarter of students at historically black colleges and universities (HBCUs) borrow $40,000 or more to attend school
- Nearly 40 percent of low-income students take out student loans
- College dropouts are four times as likely to default on student loans
David L. Kirp, author of The College Dropout Scandal2, found that when academic institutions make student success a priority, graduation rates increase. Part of student success is helping students understand their finances and creating a reasonable financial plan to complete college and repay student loans.
4. Contributing to Long-Term Financial Health
The nonprofit research institute RTI International examined the outcomes of people who received bachelor’s degrees in relation to their student loan debt. RTI’s report, Debt Burden After College: The Effect of Student Loan Debt on Graduates’ Employment, Additional Schooling, Family Formation, and Home Ownership3, revealed that student loan debt was significantly related to employment and family formation four years after graduating.
RTI researchers found that, for every additional $5,000 graduates had borrowed for undergrad, they:
- Had an additional 5 percent in earnings;
- Were 4 percent more likely to have a job related to their major and 7 percent more likely to have a job that required a bachelor’s degree;
- Had an 8 percent decrease in the likelihood of having been married and a 5 percent decrease in the likelihood of having a child;
- Had a 7 percent increase in the likelihood of their net worth being negative.
When looking for a student financial wellness program, educational institutions should find one that has:
- Many avenues for learning such as games, quizzes and videos
- Unbiased information
- Expert advice proven to help students with their financial wellness
- An analysis of results
- Options for program modification to achieve specific goals
The iGrad Financial Wellness Program gives students:
- In-depth knowledge of student loans
- Interactive budgeting tools
- The Student Loan Snapshot Tool, which helps students borrow smarter and compare repayment options
- A scholarship search tool
- An interactive financial aid “coach”
- Financial educational content including nearly 1500 articles and 250 videos
- A gamification hub with fun educational games and simulators
1 - https://www.trelliscompany.org/wp-content/uploads/2019/06/Fall-2018-SFWS-Report.pdf
2 - https://www.amazon.com/College-Dropout-Scandal-David-Kirp/dp/0190862211
3 - https://www.tandfonline.com/doi/full/10.1080/09645292.2018.1541167