by Jeff Sovern
Here, an op-ed by people from Ohio State,Associate Professor of Consumer Sciences, and Anne McDaniel , Senior Associate Director there. Excerpt:
[D]ata from our study showed over half of student loan users tried to borrow as little as possible (52 percent).
Additionally, 38 percent considered the total amount of debt that they expected to graduate with. Thirty-three percent considered the amount that had borrowed in the past when deciding how much to borrow for the school year.
But about 28 percent, almost three out of 10 students, reported borrowing the maximum amount available in their package. And about 17 percent of student loan users borrowed the maximum available without also employing a strategy to minimize overall borrowing. * * *
The SCFW included two financial knowledge questions to test whether respondents could understand the concepts of interest and inflation and had basic financial numeracy. These questions assess basic concepts of financial literacy – the knowledge and skill needed to manage financial resources effectively.
Nearly 80 percent of the college student respondents answered the interest rate question correctly. But only 59 percent answered the inflation question correctly. Just over half of the college students (53 percent) answered both questions correctly.
I'm not sure how confident we can be in a measure of financial literacy based on only two questions. But with that caveat, it sounds as if many college students are not, in fact, financially literate. And that in turn raises questions about whether some college students take out larger student loans than is prudent.