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The Effects of State-Mandated Financial Education on College Financing Behaviors

Students make better decisions about how to pay for college in states with a state-mandated personal finance graduation requirement, according to a NEFE-funded study out of Montana State University.

The study builds a compelling case for state mandated financial education, showing that it increases applications for grants, aid, including federal aid. All of which decrease credit card balances. Simply put, financial education makes better borrowers.

Making the Case

Key findings from the study build a compelling case for state-mandated financial education.

State-mandated financial education graduation requirements:

  • Increase the likelihood that students will apply for financial aid
  • Increase acceptance of both grants and subsidized federal loans
  • Decrease private loan amounts for borrowers
  • Decrease the likelihood of carrying a credit card balance

On average, exposure to financial education:

  • Increases applications for aid by 3.5 percent
  • Increases the likelihood of having a grant by 1.4 percent
  • Decreases the likelihood of carrying a credit card balance by 21 percent
  • Reduces private loan balances by roughly $1,300 for borrowers

Benefits Beyond College Financing Decisions

Personal finance coursework is geared toward building general skills. As a result, the benefits of financial education curricula extend beyond a single financial aid decision. Previous literature finds that mandated financial education in high schools also reduces non-student debt, increases young adults’ credit scores and decreases severe delinquencies.

This broad set of impacts suggests that financial education contributes to a range of improved financial decision making among young adults beyond their formal education years.