HIGHER ED LEADS TO HIGHER WAGES
College Committee Recommendations
Education and training after high school are essential strategies for earning a livable wage. In 2013, U.S. adults aged 25 to 32 with only a high school diploma earned $28,000 annually, 11 percent less in constant dollars than they did in 1965. In contrast, adults aged 25 to 32 with a baccalaureate degree earned $45,500 annually, 17 percent more than they did in 1965. Studies also indicate that individuals who have some postsecondary training after high school, even if they do not earn a degree, on average have higher wages and lower unemployment rates than individuals with only a high school degree.
COLLEGE FINANCIAL LITERACY
The benefits of expanded education and training accrue to the community as well as the individual. In fact, the economic growth and fiscal stability of Vermont requires a highly educated workforce. Individuals with higher levels of education:
• Earn more, pay more in taxes and save more for retirement.
• Are healthier, have better health outcomes and are more involved in their local communities.
• Raise children who perform better in school and are motivated to pursue higher education or training themselves.
• Have higher employment rates and are less likely to require public assistance.
• Re-enter the workforce more quickly if they become unemployed.
These outcomes make it clear that Vermont needs more high school students to participate in postsecondary education or training and more graduates of Vermont colleges, universities and training programs to remain within our state to help our economy grow.
The challenges are significant. According to an April 2014, U.S. Department of Education report, Vermont has one of the highest high school graduation rates in the nation at 87 percent – well above the national median of 79 percent. However, in 2012, only 59 percent of Vermont public high school graduates entered college. This rate is well below the national average of approximately 66 percent reported by the National Center for Education Statistics.
Deciding whether or not to attend college is one of the most important financial decisions high school students and their families will make in their lifetimes. When the majority of Vermont college students borrow to finance their education, they often do so without fully understanding how much debt is appropriate for their education or the connection between their area of study and the income level that they can expect upon graduation. Many students attend college without understanding financial aid, loans, debt, credit, inflation and budgeting. Compounding the financial challenges Vermont college students face, only 27 percent of parents in Vermont have set aside funds for their child’s college education. As a result, too many students borrow too much, default on their student loans and damage their credit scores. In 2012, 63 percent of Vermont college students graduated with an average of $28,299 in student loan debt.
Unfortunately, 41 percent of students who start college at a four-year institution in the U.S. do not complete their degrees. Students who leave college before graduation are obligated to pay their outstanding loans without the many benefits of a completed college degree such as higher earnings and employment rates. These individuals are nearly four times more likely to default on their student loans than students who graduate. According to the Federal Reserve Bank of New York, nearly 11 percent of all student loan borrowers nationally were delinquent in their payments by more than 90 days as of June 2014.
Interviews of college “stop-outs” conducted by Public Agenda indicated that they had not gone through a rigorous college selection process prior to entering their program and that they underestimated the financial implications of failing to obtain their degree. Stop-outs are students who drop out but who re-enroll at a later date.
Today’s college students face two significant challenges. First, the process of developing career goals, and identifying the education and training they need to achieve their goals, has grown increasingly complex. This complexity is compounded by the challenge of selecting a training program or institution of higher education that will best meet their social, educational, and financial needs. Add to that the challenges families feel because of the confusing financial aid process itself, and the end result is that few families are prepared to be “good consumers” of education and training.
The second challenge is that too few Vermont college students have received personal finance education in school or at home. In fact, a Schwab survey indicated that parents are nearly as uncomfortable talking to their children about money as they are discussing sex.
At many Vermont colleges, financial literacy education is largely composed of brief, federally mandated entrance and exit loan counseling for students. Student feedback indicates that most do not comprehend the information presented and view it as one more requirement of the financial aid process rather than a learning opportunity.
Declining numbers of traditionally aged students in Vermont and New England have placed great pressures on the ability of Vermont colleges to both recruit new students and retain the students who have already matriculated. For many Vermont institutions, small increases in both admissions and retention can have a significant positive impact on their balance sheet and their ability to fulfill their mission.
Most students are not financially literate when they enter college and we know that many students leave college for “financial reasons." Financial literacy education can play a significant role in changing these outcomes.
A more financially sophisticated student body can be expected to yield a corresponding increase in retention and persistence rates, fewer student loans, and lower student loan default rates and greater alumni giving (studies show that those with high student loan debt are less likely to give to their alma mater than those with lower student loan amounts). It is in each college’s economic self-interest to have financially sophisticated graduates.
Several studies show that financially sophisticated college students have better outcomes. For example, three University of Arizona longitudinal studies that followed students through college and into the workforce clearly demonstrated that achieving financial self-sufficiency, a key developmental challenge of young adulthood, appears to be driven by financial behaviors practiced during emerging adulthood. The study indicated that college students who exhibited responsible early financial practices experienced smoother transitions to adulthood than students who had poor behaviors. The studies also found that those students who were most successful with this transition to adulthood had more financial education through personal finance or economics classes.
When Congress rewrites the Higher Education Reauthorization Act, it is likely to require all colleges to provide student financial literacy education as one means of materially improving student retention and graduation rates. This requirement is one of few areas of agreement between Democrats and Republicans, and includes improving federal entrance and exit loan counseling to enhance comprehension by borrowers.
(Please note that the word “college" as used in these recommendations refers to all types of postsecondary education.) Today’s college students need access to a range of robust financial literacy and career development tools and supports specifically designed to address student needs from college entry through graduation. After a comprehensive review of data and best practices, and an analysis of the needs of Vermont college students, we recommend:
1. Vermont colleges should provide access to robust financial literacy education opportunities.
The availability and method of financial literacy education varies greatly at Vermont colleges. Each institution will need to take into account the unique needs of its students from college entry to graduation when creating and delivering an integrated and comprehensive set of financial literacy education offerings. Options include: (1) financial education delivered in person by financial aid, career services or student life departments with help from local professionals, faculty and staff; (2) peer-to-peer training programs; (3) online learning programs; and (4) game-oriented training. Some may offer this instruction as part of the student loan process, during freshman orientation, as an elective course, or throughout the year to all students in seminars or classes. We strongly recommend that all Vermont colleges create and implement a robust financial literacy education plan and that the efficacy of each institution’s efforts be measured using comparable methodology.
2. A Financial Literacy Resource and Training Center should be created for all colleges in the state to use.
We recommend that the Vermont State Treasurer and the Vermont Student Assistance Corporation (VSAC) bring stakeholders together to sponsor the creation of an online financial literacy resource center for college administrators to use when creating their institution’s financial literacy education plan. This center will treat financial literacy education of Vermont college students as a shared responsibility among all institutions and will use collaborative processes to share best practices. We recognize that the cost of program delivery can be greatly reduced through partnerships. This center will give relevant personnel access to vetted and trusted age-appropriate financial literacy curriculum, lesson plans, videos, games, applications, activities, projects, case studies, books, articles and volunteer speakers. The center should be created with input from educators who currently and successfully teach these topics in our Vermont colleges and draw on the national resources that already exist. The center will also focus on ways to provide financial literacy training, programming and curriculum suggestions to the personnel and volunteers providing financial sophistication education to students on campus or online. A forum already exists to help make this a reality. In 2013, the Vermont Colleges Financial Literacy Consortium was launched; it meets on a regular basis at Champlain College.
3. All colleges in Vermont should partner to create a Virtual Career Center.
We recommend that VSAC, the Vermont Higher Education Council, the Vermont Department of Labor and the Vermont Agency of Commerce and Community Development bring stakeholders together to explore the creation of a mechanism that will give Vermont employers a single point of contact with all Vermont postsecondary educational institutions. Vermont employers will be able to use this system to identify specific job skills and training needs for existing and future employment opportunities. This information will allow colleges to create educational programming and identify student internships tied to these existing and emerging job opportunities. The goal is to give local employers access to newly graduated employees or student interns with the skills and training desired by the employers. Another goal is to match Vermont students with exciting job opportunities in our state and help us expand and grow our economy.
4. Create a pilot Child Savings Account Program.
Many children in Vermont are born into families with negligible savings to invest in their future, yet research and practice have shown that family ownership of even modest assets can give children not only a measure of economic security, but also create a sense of possibility and hope for the future. Research shows that children from low- and moderate-income families with college savings of less than $500 are three times more likely to attend college and four times more likely to graduate than similar children with no college savings. College savings accounts are clearly a powerful tool. We recommend that VSAC and the Vermont State Treasurer create a pilot program of child savings accounts using Vermont’s existing 529 college savings plan targeted at low- and moderate-income families in Vermont counties that have the lowest level of high school graduates moving on to college or other postsecondary educational institutions. A pilot of this nature can be launched and measured with modest funding from public or private sources or a combination of both. A number of New England states are currently engaged in or contemplating similar pilots and programs with the encouragement and support of the Federal Reserve Bank of Boston.