Opinion: The government is wrong: Financial literacy alone will not solve the student debt crisis


Student debt has reached epic proportions. Treasury Secretary Steven Mnuchin got it right this week when he recommended that colleges provide compulsory financial education as a solution to the college lending crisis.

Mnuchin’s advice follows a deceptively simple scenario: Student finance debt plagues young people and their families because They do not understand the real price of college. American families have the power to solve our national problem, as he sees it; they just need to monitor their own accounts.

As a cultural anthropologist who studies the financial lives of American families, I have dedicated my life to helping students understand how borrowing, spending, and investing have shaped their lives. In general, I am optimistic about financial literacy. But when I hear an official tell us that this is the solution to the student debt crisis, I know the boards are both morally and intellectually bankrupt.

When Mnuchin and education ministry leaders advocate for financial literacy, they are throwing responsibility for a critical national issue on the shoulders of students and their families – and sidestepping themselves. Advocating for colleges to offer financial literacy programs requires nothing from those in power.

Mnuchin should recognize that financial literacy is not a real solution. First, most students and parents facing the high cost of college education don’t earn enough to cover the costs without jeopardizing their future. Since the 1980s, salaries have stagnated, while college tuition has skyrocketed and housing and board costs have doubled. During this period, the price of college education increased almost eight times faster than wages. No amount of financial education will change these important facts.

There is also a more fundamental problem. In college decisions, students and parents look not only at costs, but also what schools offer young people as they develop. As Philip Fernbach, co-director of the Leeds School of Business Center for Research on Consumer Financial Decision Making, and Abagail Sussman, associate professor at the Chicago Booth School of Business have argued, when people are faced with an important decision, for example where to go to college and how much to pay, they don’t turn to the kind of math formulas and abstract ideas they might learn in financial literacy classes that Mnuchin values. They use specific information – for example, on the records and reputations of different institutions – and are guided by priorities that are dear to them.

Students and parents are forced to navigate a complex and confusing set of options to fund higher education.

Of course, more education on basic financial concepts would help Americans. But the biggest benefit would be learning how loans can trap borrowers for years, especially if they are women and people of color. In higher education, women incur much more debt than men and have more difficulty in repaying them. The breed aggravates this condition. On average, black graduates – women and men – owe nearly $ 7,500 more than their white peers. This disparity triples almost four years after graduation due to compound interest and the high cost of graduate degrees, especially at for-profit institutions.

Read:12 years after starting college, white men have repaid 44% of their student loans, while black women owe 13% more

Financial education alone cannot level the playing field. Mnuchin says more information is essential to “empower” students to make “optimal financial choices” in higher education. Today there are no optimal decisions to be made. Students and parents are forced to navigate a complex and confusing set of options to fund higher education. And they can’t know which jobs will best suit the interests of graduates or what the job market will look like after them. University finance demands that students and parents be both fortune tellers and financial analysts. As sociologist Marianne Cooper has argued, the system demands far too many basic financial literacy lessons.

Read:Before you go to college, learn these 6 things about student loans

The federal government can fundamentally change the costs for students and their families. Democratic candidates Bernie Sanders and Elizabeth Warren are strong supporters of the tuition-free university. This is a good place to start. Free tuition would ease the financial pressure on students and families so that they can focus on learning, not the cost of education.

Read:Where do the 2020 applicants stand on student debt and college affordability

Caitlin Zaloom is Associate Professor of Social and Cultural Analysis at NYU. His new book, “In Debt: How Families Run College At Any Cost,” will be published by Princeton University Press in September. Follow her on Twitter @caitlinzaloom.

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