Iowa State attacks student debt through research, resources and programming

AMES, Iowa - A recent study of Iowa State University students has found that one in eight don't realize they owe student loans, while two in five don't realize how much they owe. Conducted by researchers from ISU's Department of Human Development and Family Studies, the Office of Student Financial Aid, and the Federal Reserve Board, the study represents the latest effort to address student debt and financial literacy at Iowa State.

In the three years since ISU leaders and the Government of the Student Body (GSB) invested in greater financial literacy resources:

  • Student enrollment for the one-credit, online "Personal Finance in Early Adulthood" course soared from 155 to 623, and from 187 to 408 for the related three-credit course.
  • Iowa State continues to be one of the few institutions that offers a full-service financial counseling clinic. The number of students who have sought counseling assistance there has grown from 296 in 2007 to some 600 this year. The number of students served by clinic workshops has also doubled from 1,525 to more than 3,000 this year.
  • CyGold, a student organization focused on financial literacy peer education, is now operating and will make peer-to-peer presentations across campus.
  • This summer, ISU's Office of Student Financial Aid will provide families an online calculator being offered by the U.S. Department of Education. In addition to helping students understand what they owe, it will enable students to calculate realistic earnings for their intended majors and see how their student loan payments will impact their budgets after college.
  • For the third year, Iowa State will offer an intensive three-day financial literacy workshop for Iowa teachers and counselors in July. Participants receive a semester-long financial literacy curriculum guide and hands-on experience on how to teach the interactive lessons. All Iowa high schools must include financial literacy in the curriculum beginning this coming school year.

Iowa State University President Steven Leath (left) said he envisions making the university a national leader in reducing student loan debt. One way to address the problem is to learn what students know and don't know about their own finances.

"Greater understanding of personal finance, including loans, is absolutely essential in order to reduce the level of student debt. While student debt is a national problem, we're determined to provide the services at Iowa State that will help make a difference," Leath said.

Teaming up to conduct financial literacy study

Jeanne Hogarth, the manager for the Consumer Research Section of the Division of Consumer and Community Affairs at the Federal Reserve Board, collaborated with Cynthia Needles Fletcher (right), a professor of human development and family studies; Gregory Forbes, a researcher in the Office of Student Financial Aid; and Darin Wohlgemuth, a researcher in Enrollment Services, on the new ISU student financial literacy study. Hogarth began working on the project while serving as the 2009-10 Dean Helen LeBaron Hilton Endowed Chair in Human Sciences at Iowa State.

"We were able to launch a study that had several objectives," Fletcher said. "First, we wanted to understand students' knowledge and management practices related to their finances. We also want to be able to track retention and academic success, and we're able to do that by a collaborative effort -- bringing Darin [Wohlgemuth] and Greg [Forbes] into our research team.

"Our goal is to use the information to target and improve our education and counseling programs, and to see how this information can also inform the body of research surrounding college students and their financial capability," she continued.

The study included responses from a random sample of 801 resident Iowa State undergraduate students (60 percent female, 40 percent male) to an online voluntary survey from the fall of 2010. Only 22 percent of the respondents had not taken out any student loans.

About 13 percent of students reported that they did not owe any money, when in fact they did have student loan debt. Nearly two-fifths (37 percent) underestimated the amount they owed. And one out of 10 underestimated their debt by more than $10,000.

"That lack of awareness might imply a need for additional counseling, or some counseling at application," Hogarth said. "So there are roles for high school and college counselors -- maybe an annual counseling session, and certainly some sort of exit interview."

Among the sample, females, freshmen, transfers, and those with higher grade point averages were all groups that were more likely to know about their student loans. And those subjects who had their parents teach them money management knew more about their college finances than those whose parents did not teach them.

Numbers on credit card debt

In terms of credit card debt, 15 percent said they had a balance of $500 or more, with 9 percent having a balance that exceeded $1,000. Fourteen percent said that they had overdrawn a bank account. And 37 percent said finances have affected their academic progress.

There was also some good news.

"We asked the students a short set of knowledge questions and, on average, they passed our test," Fletcher said. "The average score was 78 percent, so most of our students have a certain level of knowledge.

"Most of them are also responsible users of credit," she continued. "Eighty percent who have credit cards report that they pay off the balance each month. Also interestingly, when asked had they received any financial education before they came to college, 59 percent said 'yes.'"

The study won first-place among poster presentations at the American Council on Consumer Interests annual conference earlier this month in Memphis, Tenn.