How To Decrease Student Borrowing?

This blog has been written by Phil Schuman, Director of the Office of Financial Literacy at Indiana University

In our current financial setup, 18 year olds are able to borrow thousands of dollars in student debt, despite the fact that most of them have never dealt with such quantities of money and have never received comprehensive financial training.  In many cases, the parents of these students also haven’t received this training.  While there is no doubt that the debt provides an opportunity for a student to increase their lifetime earning potential, a lack of financial awareness could limit their positive impact of the degree.  Indiana University recognized this gap and created the Office of Financial Literacy to provide some of this training that would lead to a more informed student/parent, and hopefully would lead to students borrowing more efficiently.  

Indiana University sends out a “debt letter” every year indicating to student borrowers how much they have borrowed up to that point in their academic career and their projected monthly repayment amount.  Although it is a relatively simple thing to provide students, informing students of their debt levels is an incredibly powerful way to get students to take action on preventing them from going to far into debt.  

In addition to the debt letter, The Office of Financial Literacy works with students to educate them about the basics of personal finance, and how they can use the knowledge to better their own financial situation.  We educate students through our website (moneysmarts.iu.edu) that features podcasts, quizzes, and lessons; personal finance presentations delivered to classes, student organizations, and residential communities; and one-on-one appointments primarily led by trained students.  Through these mediums, we talk to students about controlling their expenses while in college to avoid having to live the life of a student after they graduate.  In particular, we tell our in-state students that almost 60% of the cost of attendance of college is not tuition and fees, meaning that they control almost 60% of their college costs through the financial decisions they make.  If students can learn how to make smart decisions regarding these (room and board, books and supplies, transportation, personal) expenses, they can significantly cut back on their level of borrowing.

The one-on-one appointments we provide have proven to be a great way to educate students on their personal financial situation.  For students that are currently facing financial hardship/stress while in school, we’ve developed a partnership with the Student Advocates Office to provide one-on-one sessions to any student who is applying for an emergency loan to cover an unexpected expense.  The loans carry no interest but instead come with a learning outcome in the form of a meeting with an IU MoneySmarts team member who will walk the student through information about how to prevent such an unexpected expense in the future and will help them set up a repayment plan to pay back the loan to the Student Advocates Office.  Through the intervention, the students learn how to effectively budget their money to both prevent from not having the capability to cover an unexpected expenses and to payback a debt on time.  

These initiatives that we’ve put in place to help our students lessen their financial burden after they graduate are still in their infancy stages.  As we learn more about our students’ needs and how we can best address their financial questions, we will continue to create new programming that maximizes knowledge gained by the students.  Still, we are incredibly proud of our accomplishments in our four years of existence: Indiana University’s commitment to affordability has led to a decrease in $98.7 million (15%) in student borrowing.