low since the test was first adminis-tered in 1997. This year, studentsanswered only 48 percent of test ques-tions correctly.The results of the survey, along withslumping economic trends, demonstratethe need for financial literacy education.In a speech to Jump$tart Coalitionmembers, Federal Reserve Board Chair-man Ben Bernanke emphasized theconnection between a financially literateworkforce and a healthy marketplace.“In light of the problems that havearisen in the subprime mortgage market,we are reminded of how critically impor-tant it is to become financially literate atan early age so students are betterprepared to make decisions and navigatean increasingly complex financial market-place,” said Bernanke. “Financial liter-acy and consumer education make themarketplace effective and efficient, andbetter equip consumers to make tough,yet smart decisions.”
The Growing Debt Burden
In recent years, financial aid profes-sionals have grown concerned with find-ing better ways to educate students onmanaging their finances and handlingdebt. Making sure students learn moneymanagement skills is more important thanever because the majority of students inthe U.S. incur debt from student loans themoment they enter college.Record numbers of college students areapplying for financial aid, and borrow-ing larger sums. During the first half of 2008, 8.9 million students nationwideapplied for federal student aid—anincrease of 16.3 percent over the sameperiod a year ago.States facing budget problems arecontributing less to public colleges anduniversities. As a result, many collegesare increasing tuition to cover costs, forc-ing students to borrow more. For exam-ple, from 2002 to 2008, tuition and feesat public, four-year universities increased31 percent.According to Tanisha Warner, aspokesperson for the nonprofit serviceagency Consumer Credit CounselingService, many graduates suffer fromsticker shock once they receive theirdegree. “Fresh out of college, it’s notuncommon for student loan payments torepresent the largest financial obligationmany graduates face,” says Warner.“These students find it difficult to keepup with their daily obligations in addi-tion to their new student loan payments.”Student loan entrance and exit coun-seling alone may not be enough to helpstudents manage their debt obligations.In addition to repaying their studentloans, students also have to contend withcredit card debt they incur in college.According to a 2004 study conducted byNellie Mae, over 75 percent of studentsown a credit card and use plastic to addan average of $2,169 to their overallindebtedness by graduation.Credit cards create an illusion of finan-cial independence that is often too tempt-ing to freshmen starting out on their own.At first students may vow to use their cardonly for emergency purposes, but manyfall into the bad habit of using their plas-tic to pay for everything from textbooks
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STUDENT AID TRANSCRIPT Vol. 19, No. 3, 2008
Credit cardscreate anillusionof financialindependence thatis often tootempting tofreshmen startingout on their own.
to pizza. Students are often unaware of therisks of credit card use, and many accu-mulate more debt than they can handle.
Breaking New Ground
Many colleges and universities now offerprograms to teach students importantfinancial literacy skills. Texas TechUniversity in Lubbock was one of thefirst schools to help students by advocat-ing responsible financial behaviorthrough increased financial education.Started in 2001, the university’s pioneer-ing Red to Black program provides freefinancial planning, counseling, and semi-nars for students.Dottie Durband, professor of personalfinancial planning at Texas Tech, devel-oped the Red to Black program and servesas its director. “Developing a budget setsthe foundation,” says Durband. “It is atool to discover where students are finan-cially. If they are in the ‘red,’ it helps themget to the ‘black.’ And if they are alreadyin the black, budgeting skills help themstay in the black.”The program was created as a campusstudent organization under the Divisionof Personal Financial Planning. Durbandbelieves that training students to serve ascounselors to their peers is the bestapproach, although the key is simply tofind any way to connect to students.“It’s about experiential learning,” saysDurband. “Students are afraid of theword ‘budget.’ Call it a spending plan—it doesn’t matter—just provide them withthe help and resources needed to learnhow to manage money.”Becky Wilson, Texas Tech’s financialaid director, says Red to Black is recog-nized as the university’s best resource tohelp students manage their money. “Somestudents get into trouble before they real-ize what has happened. Knowing whereto start is a big thing and this programhelps students get their finances organ-ized,” says Wilson. She adds that budg-eting is now a required component of freshman orientation.Red to Black is now a model for otherschools that are developing similar
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