We need to find the teachable moments within the higher education financing and repayment process ...
American Student Assistance has a unique window onto students during some very important milestones in their formative financial years. Our nonprofit interacts with students from the time they’re choosing a college, to applying for financial aid and loans, to starting a first job, getting that first apartment, making that dreaded first student loan payment, and all the way through to successfully paying off their student debt.
Not unexpectedly, we’ve seen a serious lack of financial acumen among student borrowers for quite some time. But now, with outstanding student debt in the U.S. surpassing $1 trillion, student loan delinquency and default on the rise, and the national financial recovery stalling because student borrowers can’t fully participate in the economy, the situation has become dire. Understandably, higher education institutions are stepping up their financial literacy services for students as more and more families weigh affordability and student debt in their college attendance decisions, and alumni cut back on donations.
The traditional methods of financial literacy instruction, though, as practiced by the higher education community, are proving ineffective. Many institutions have ramped up their efforts beyond the traditional one-time entrance and exit interviews (federally mandated debt management sessions for all federal student loan borrowers upon the start and end of their college years) to include multiple financial literacy workshops for their in-school student populations, both in person and online. But studies show that early financial education, however well-intentioned, often fails to have a lasting impact on money management behaviors. Meanwhile, student loan delinquency and defaults continue to grow, despite the preponderance of financial literacy programs available from schools, banks, nonprofits, the government and others.
So where’s the breakdown?
Today, most content for student financial education is rooted in foundational basics that are consistent across service providers, from educators at the secondary and postsecondary level, to third-party vendors specializing in financial education, to lenders and credit-card providers, to government agencies. All of these entities deliver instruction on planning for higher education expenses, employment and income, budgeting, student loans, credit and debt management, savings and investing. It’s not that we have to reinvent the wheel when it comes to financial literacy curriculums; it’s that we have to reinvent the way we engage students to use that wheel effectively.
That’s what ASA learned in experiments conducted over the past decade to prove that proactive education about debt management can positively change student borrowers’ repayment behavior. While our research shows conclusively that hands-on, practical communication prevents problems with loan repayment (out of the more than 1 million student loan borrowers we serve, 94% have loans in good standing), our key takeaway has been that we must deliver the right information, at the exact right time, in the right format and using the right vehicle.
For example, at ASA, we knew that students who withdraw early from college without graduating are at the highest risk for defaulting on their loans. We developed a series of communications with the right information for this population: reaffirmation that the debt must still be repaid, when repayment was set to begin, available payment plans, options to postpone payment, and the benefits of returning to school to earn a degree or certificate. To get the timing just right, we made special arrangements with our partner colleges to be notified as soon as possible after a student borrower withdrew. Typically, we would have to wait for status updates from the National Student Loan Data System to learn that a borrower had dropped out—a process that could take months.
Reaching these borrowers could be a challenge, as they could have moved to a new residence and/or changed email providers since their time in school. So we used a variety of different formats and vehicles for our communications, from snail mail letters to phone calls to emails to online information, to deliver the information how and where borrowers were most open to receiving it.
Any conversation about financial literacy instruction, then, needs to examine not just what’s taught, but by whom and when. For starters, we need to acknowledge that financial education should be a lifelong learning experience, not a one-and-done event. There’s been a push in recent years, mostly at the local state level, to move financial education ever earlier in the life of a student, to instill financial capability at a younger age and thereby prevent student loan over-borrowing, credit card mismanagement and the like. Georgia, Idaho, Louisiana, Missouri, Tennessee, Utah and Virginia, all require a standalone personal finance course be taught at the high school level, while Arizona, Colorado, Illinois, Kansas, New Hampshire, New Jersey, New York, North Carolina, Ohio, South Carolina, South Dakota, Texas and West Virginia mandate personal finance education as part of another high school course offering.
Starting this type of training in high school and even middle school is a welcome initiative, but there needs to be an equally strong commitment to providing financial education to students once they become adults. As with so many subjects, financial education is best absorbed and retained when it can be put to use immediately to positively impact the learner’s situation. We tend to forget what we never use (do you remember anything from your high school trigonometry class?). So while teaching a sixth-grader how to build a budget is a noble cause, we must remind this same student of the information and reinforce good budget behavior when it comes time for her to strike out on her own.
The rush to integrate financial literacy into the classroom setting stems from our antiquated notion of what “education” looks like. Financial literacy for college-goers is most often associated with pedagogy, which is the art and science of helping children learn. But andragogy, or adult learning, offers a better model for today’s student loan borrowers. After all, the majority of college students nowadays are adults far outside the traditional college age range of 18 to 22. Many are part-time and may be struggling with other financial obligations.
It’s also illogical to constrict financial literacy training to the in-school period, when recent reports by the Federal Reserve and Consumer Finance Protection Bureau suggest as many as 30% of student loan borrowers in repayment are struggling financially and need debt-management training just as much as incoming freshmen. These individuals don’t need financial literacy theory; they need practical advice and hands-on to do lists they can implement immediately. In short, they need to learn by doing.
Learning from real life
But pedagogy presents a challenge to this type of experiential learning, which, research suggests, offers the greatest potential to fundamentally change an individual’s behavior. While a pedagogical model in the classroom may include experiential learning, it cannot accommodate the time in between lesson and real-life experience, meaning there is often not enough time for the user to put what she’s learned into practice.
That isn’t to say there’s no place for pedagogy in financial literacy. Particularly at the high school and college level, the pedagogically based curriculum has a role to play in giving students a solid foundation in the key concepts, principles and technological tools that are fundamental to being smart about money. An advantage of this systematic approach is that we can teach many students at the same time, in the same place and at the same pace, thereby enforcing that students learn equally. Results measurement is made easier since you can track and compare learning outcomes across one group of participants.
But a drawback of this teaching method is a lack of self-motivation for the learner; often, she is participating in the learning because of an external force and is never required to re-engage with the material after the class ends. For example, many schools mandate their students participate in financial literacy seminars or courses, and all federal student loan borrowers are required to complete entrance and exit counseling upon starting and ending their college careers. These efforts are well-intentioned, but they’re not well-timed or well-matched to the learner’s real-life situation and therefore fall short. In the case of exit counseling, we’re asking students to retain information about loan repayment options six months before the first payment due date–that’s a lifetime for a recent graduate who needs to find employment and housing before even thinking about loan payback.
In contrast to pedagogy, andragogy is geared toward the adult learner who 1) is self-directed; 2) learns by building upon an existing base of information; 3) is motivated to learn in ways that are relevant to his or her life experience; and 4) is interested in learning that addresses and solves problems with real-world application and relevancy.
Andragogical research suggests that a traditional content-based curriculum is ineffective in enabling all students to fundamentally understand and retain key concepts in financial education. Financial education, then, is best served by an approach grounded in “adult learning theory” that utilizes best practices associated with social networking and sustainable behavioral change.
In the Adult Learning Theory model, users choose to engage at critical decision points in their own lives and direct the learning experience. With their varying levels of financial competency, adult learners take time to absorb the information and practice it multiple times, repeating topics as necessary. They take their own path through the material at their own pace. Additionally, financial education for the adult learner must be customized in order to be the most effective. The financial literacy provider must be equipped to engage the individual user on her own terms and supply her with personalized on-demand content that not only satisfies her immediate request but also anticipates her other needs.
For example, a college graduate who hasn’t yet found employment may visit a financial education provider’s website to learn what she should do about her student-loan payment. While there, she should be able to easily find information on payment options, but she should also be directed to additional useful content on careers, interview skills and making ends meet during unemployment. Today’s financial literacy provider must acknowledge that financial decisions are rarely made in a vacuum; work, earnings, debt, savings and expenses are all intertwined. Financial education must strive to meet the learner's needs, those both explicitly stated and implied.
Financial literacy must also be delivered in multiple content formats (videos, interactive games, online chats, podcasts, articles, etc.) to satisfy different learning styles. For example, some people may best learn about saving up for a big purchase by reading a static webpage. Others better learn visually or aurally, so they benefit from watching a video or listening to two people talking about how to save for a large-ticket item. Still others will need hands-on experience through an interactive tool where they can enter their own specific spending and saving goals. We must provide users with content they need in a format they want–and we must go to them where they are. By taking advantage of all the technological advances in communication today, we can engage the learners on their PCs, tablets, mobiles, etc., while still offering the personal human touch of a phone call or old-fashioned snail mail when appropriate.
The marriage of technology and financial literacy brings greater integration of social networking into program offerings. Peer-to-peer online communities and discussion groups offer users a way to share information, common questions, ideas and advice, thereby allowing users to pass along what they have learned and gain a fuller mastery of the subject matter.
Where the Adult Learning Theory model presents a challenge is in the measurement of educational effectiveness, because users navigate the program at their own pace and self-select program entry and exit points. Under a traditional pedagogical financial literacy curriculum, we can ask about users' behavior and financial attitudes before engaging with the class. Then, we can require them to take a final test and gauge their satisfaction, behavior change and confidence regarding the material taught.
Leveling with adults
With adult learners, though, we cannot mandate excessive testing because users will choose not to engage. Instead, we must take a more sophisticated phased approach to metrics that can provide insights on four different levels. In Level One, we track participation: how often do individuals use and engage with the program, by measuring number of registrations or content consumption via site statistical tracking.
In Level Two, we measure how satisfied users were with the engagement, through surveys, user referrals and their engagement in the community such as via online communities.
Level Three is about learning; through testing, surveys and polls, we measure their retention of the subject material, their confidence in their new knowledge and any relevant behavior changes. For example, ASA’s financial education program, SALT, launched a mobile app, Fixx, that shows how cutting back on small purchases can save big money. We gave Fixx users pre- and post-surveys to gauge self-reported behavior changes; 61% reported a decrease in small expenditures.
Another way we can measure outcomes for adult learners is to observe their behavior in online discussion communities. Research shows that if users are feeling confident in their knowledge and understanding of financial topics, they are more likely to engage in conversation openly with experts and even peers.
Finally, in Level Four, we look to see if they walk the walk as well as talk the talk. We must confirm whether or not users' financial behaviors change for the better, such as through improved credit report scores or bringing more of their debt into good standing.
To best develop financial capabilities, we should be looking to new educational models that incorporate highly interactive online educational environments and adult learning methodologies. We need to find the teachable moments within the higher education financing and repayment process, and give learners the opportunity to absorb information through these experiential situations; reinforce these teachable moments with practical tools; and give learners the opportunity to share ideas and experiences in a community of their friends and peers.
Alisa Wilke is managing director of product development for American Student Assistance, the nonprofit creator of the financial education program SALT (saltmoney.org).