Updated March 23, 2022

We are at a crisis point when it comes to student loan debt.

Student loan debt in the United States has reached an all-time high of $1.749 trillion, with 43.4 million students having federal student loan debt.

The average student graduates with $37113 in federal student loan debt, and the average student balance could be as high as $40,904 when private loan debt is factored in. Yet, most students do not know how to manage their student debt successfully. This is because they haven’t been given adequate financial education to help them do so, a new study finds.

Lu Fan, an assistant professor of personal financial planning at the University of Missouri and lead researcher of the study, suggests it is one thing to acknowledge the problem, but another to start educating students before they are deep in debt.

The average student debt for graduates from the University of Missouri is $21,884.

The study is published in the Journal of Family and Economic Issues.

The study

For their study, Fan and Swarn Chatterjee, a professor of financial planning, housing and consumer economics at the University of Georgia, used the 2015 National Financial Capability Study dataset.

They looked at more than 2,600 responses from the dataset, focusing on respondents between the ages of 24 and 65, who had a student loan, were no longer a student, were employed and were the primary decision-makers in their households.

The researchers looked at financial education from a broader definition, Fan explained. They considered not only formal education offered by schools, but also financial socialization, a process where parents shape their children’s financial attitude and beliefs, and financial wellness programs offered by employers so individuals are exposed continuously to financial education.

“The objective of this research is to identify the determinants of student loan stress and risky student loan behaviors,” said Fan.

“The ultimate goal of financial planning practice is to help individuals and clients increase financial well-being. Mental stress and risky debt behaviors impede the progress of getting financial satisfaction.”

The findings

According to Fan, they found that while 55 percent of borrowers reported being stressed about their student loans, only 30 percent said that they had received financial education about how to pay off their debt.

In addition, only 40 percent of borrowers reported having financial influence from their parents.

“Given the number of people who need student loans to attend college, we need to do better at educating borrowers,” Fan said in a statement.

Interestingly, the researchers also found a disparity in how women and men react to their student debt. While women were more likely to pay their student loans on time, but more likely to feel worried about their debt, men were more likely to be late on payments, but less likely to feel anxious about their debt.

In addition, they found that people with loans who did not complete college were more likely to be worried about paying off loans than those with degrees.

What can be done?

More students need to be properly educated about managing debt as well as the various repayment options that might be available to them.

Fan encourages policymakers and loan providers to do more to educate borrowers.

“My hope is that policymakers use this information when developing financial educational programs,” she said in a statement.

“Better educational resources created for specific audiences — parents, young adults, women and households that have experienced a drop in income — will lead to more educated borrowers.”

Universities can also do their part by offering programs like monthly information sessions on student debt or counseling sessions for students experiencing mental stress due to student debt.

At the University of Missouri, for example, the Office of Financial Success, a money management center directed by the university’s Department of Personal Financial Planning (PFP), provides free financial counseling services and financial education to students with financial difficulties, Fan said.

Financial education is deeply rooted in the school’s curriculum as well, she added. The PFP offers introductory courses related to money management, including debt management and financial concepts, such as interest compounding and inflation.

What’s next?

The researchers will continue their study, focusing on three specific areas, Fan said.

They will study the effects of financial education and financial socialization in relation to an individual’s long-term financial satisfaction.

They will also study how financial literacy affects money management behaviors and financial stress of individuals and households.

They will focus on the roles financial planners and counselors play in the journey of reaching financial well-being as well.