College-bound students need to be educated about debt

This is the time of year high school seniors in New York and around the country choose what colleges to attend — and how they and their parents will pay for that education.

Other than a mortgage, college tuition is likely the biggest debt New York students will take on in their lifetimes. The Education Data Initiative reports that the nearly 2.5 million student borrowers in the state owe an average of $37,678 in college loans. In his 2023 budget proposal, President Joe Biden did not recommend canceling any student debt though he since has signaled he might be open to the idea, but his administration did say it would extend the pause in student loan payments for another 90 days until Aug. 31.

But the extension doesn’t change the painful reality that most students and families simply don’t have the financial knowledge to make wise decisions about colleges, majors and debt. Personal finance education would have a much bigger long-term positive impact on student debt than any short-term government loan repayment hiatus.

Over the last two decades, student debt has surpassed auto loan and credit card debt, and trails only mortgage debt for American consumers. Before the pandemic pause, student loans also had the highest default rate of any type of consumer credit. When the pause ends, experts expect the default rate to revert to its former high rate.

To help students avoid debt that keeps them from getting married, starting a family, buying their first home, or saving for retirement, the federal government, high schools and colleges have a moral obligation to educate them. That's especially important because even as household income has increased 21% since 1991, tuition at private colleges has doubled and it rose even more at public colleges.

Student debt can be made more manageable if families know how much debt a specific degree is worth. Experts suggest that loans should not exceed a graduate’s first annual salary. There are always exceptions, but on average, someone with an engineering degree has the ability to handle more in student loans than someone with an English degree.

There are ways to earn a degree in any major without breaking the bank. These include starting at a community college, working part-time, earning college credits in high school, pursuing an accelerated degree, and more.

But students shouldn’t have to cram all this knowledge into their heads while searching for colleges. It's included in full-semester high school personal finance courses, yet just 11 states require one.

Our center tracks how each state handles personal finance education in high school. In our last report, in 2017, we gave A and B grades to less than half the states. New York earned a B. The unacceptable bottom line is that 4 out of 5 states, including New York, do not guarantee that all students have access to substantive personal finance education before high school graduation.

A few colleges like mine require such training as a graduation requirement, but most colleges do not.

And the federal government’s own educational efforts must be more than just providing a website that students must visit before they receive government loans.

Overwhelming debt is a national phenomenon that not only dampens young people’s enthusiasm about the future, but also places roadblocks in the path to success. It’s time for high schools, colleges and the government to address this crisis, because repayment pauses aren’t enough.