September 15, 2014

Off To School Financial Planning

Guest column submitted by U.S. Senator Mike Crapo

As students start college, being aware of financial options and the long-term implications of student loans and debt is a critical part of laying the groundwork for a sound future.  Planning out how best to pay for school, learning about the financing choices available and thinking through the earning potential of a selected field of study can help reduce financial pressure after graduation.

Beginning the path to higher education is filled with great excitement and opportunity for students.  However, students are faced with financial questions they might not have considered until this point, such as how they will pay for college, whether they should finally open a bank account and how they will budget their money. 

Our community banks and credit unions are one example of businesses helping students sort through these financial issues in this new chapter in their lives, and many entities provide financial literacy tools to help students improve their understanding of the financial burdens they are about to undertake.  Setting up a financial plan when starting college is important to help ensure students have greater latitude when making later education and job decisions. 

In the student loan market, both federal and private, there has been a growing field of research focused on the high student debt burden, now roughly $1.2 trillion, and its impact on the financial opportunities and decisions of recent college graduates.  The Consumer Financial Protection Bureau (CFPB) noted that the federal government's share of outstanding total student debt topped $1 trillion for the first time-roughly five times higher than existing private student loan debt.  High student debt can have lasting, negative effects on the financial lives of recent graduates.  Additionally, the significant and increasing role of the federal government in this market ultimately leads to excess exposure for the U.S. taxpayer and diminished student borrowing choices.

Policymakers must increase their focus on the rising cost of college and failure to inform students properly about the loan repayment process beforestarting school.  Since 1974, the cost of college has risen roughly 350 percent.  There have been relatively few market forces to keep costs down, as students can borrow up to the cost of attendance for an undergraduate program and take out almost unlimited federal loans in graduate school. 

Students must be adequately educated about the impact their borrowing will have on life after graduation.  It is unclear if students have the proper information to compare loan types, earning potential for different career choices, and what their monthly payments will look like when they graduate.  These issues should be addressed before a student ever receives a loan.

Because of the importance of the financial decisions associated with attending college for long-term financial soundness, earlier this summer, the U.S. Senate Banking Committee, on which I serve as Ranking Member, held a hearing to assess the financial products available for students.  We must continue to work to improve student financial options, convenience and financial literacy to ensure students get the best footing under them as they get started.

There is no doubt the financial challenges associated with higher education today can be daunting for students.  It is essential that students carefully consider their financial options when entering college to ensure that their financing decisions will lead them on a successful career path. 

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