Reforming the American Pipeline to Higher Education

As our country faces higher costs of gas, groceries, and other consumer goods, customers are taking this opportunity to reevaluate their purchasing habits. This environment is also causing young Americans to think twice about one of their largest financial investments: college. With student loan debt set to overtake mortgage costs in just 20 years, it is important that students carefully consider the terms of their student loans and be fully aware of the costs and benefits of incurring this debt.  

The Pipeline to Debt

On average, an American student who chooses to attend college will borrow over $30,000 to attain a bachelor’s degree. Among those with long-term student loan debt, half still owe $20,000 on their outstanding loan balance 20 years after entering school. These tremendous costs have many Americans wondering if a degree is worth the money. Fifty-seven percent of Americans believe the higher education system in the U.S. fails to provide students with a value equivalent to the money spent on tuition.

Financial Illiteracy

Expanding financial literacy education may help incoming college students make better financial decisions when choosing a school to attend. According to the Brookings Institute, only 28% of college students were able to answer basic questions about inflation, interest, and risk diversification. An explanation for this lack of basic financial knowledge is that only 25 states require any course in personal finance or financial literacy in high school. As a result, students graduate high school with little to no concept of how to save, invest, and manage debt. Many also fail to grasp the long-term financial implications of student loans. 

However, high school financial literacy requirements have led to positive results in states that have implemented them. For example, a study looked at young adults in three states with financial literacy requirements for high schools (Georgia, Idaho, and Texas) and compared them with young adults in states without those requirements. The study found that students who attended high school in a state with a financial literacy requirement saw up to a 32-point increase in their credit score. Georgia, Idaho, and Texas all saw loan delinquency rates decrease after implementing a financial literacy requirement, but Texas saw the most significant impact with a 6-point overall decrease in loan delinquency rates. 

College vs. Trade School

Unfortunately, despite the rising cost of higher education, not all students are seeing positive outcomes as they work toward or obtain a degree. Consider the following statistics:

• Just 42% of alumni say they were academically challenged in college.
• 44% of recent graduates between 22 and 27 years of age are currently underemployed. 
• 60% of students who initially enrolled in a bachelor’s degree program in 2012 had not graduated by 2018. 

There is a paradox in our job market as it is oversaturated with people who have attained the sought-after status of a college graduate, and most of these individuals find themselves working a job where the knowledge they paid so much for is being underutilized. 

One solution to this problem is ALEC’s Informed Student Document Act, which would require public institutions of higher education to publish key information like the average starting salary for different majors, average student debt rates, 4-year graduation rates, and more. 

Amazingly, 62% of Americans between the ages of 18 and 24 said they never learned about trade schools in high school. A general lack of awareness when it comes to alternative postsecondary options like trade, vocational, and technical schools coincides with current workforce shortages throughout the country. 

According to a 2021 survey by the Associated General Contractors of America, 89% of contractors had a difficult time finding trained workers. These shortages contribute to high prices and exacerbate delays in project timelines. While a college education is certainly the best path for many students, some high schoolers may have picked a trade school instead if they were aware of this option. 

Better knowledge of college alternatives and the long-term implications of student loan debt, and how to manage it, could significantly improve the problems of student loan debt and workforce shortages. In addition to the Informed Student Document Act, other potential solutions for policymakers include ALEC’s Student Futures Program Act and Partnerships for Student Success Act, both of which look to make students more aware of the options available to them after high school.