Author: paloma

19 mar The conditions under which students ask for loans are not universal

Financial literacy. Being financially literate is vital in making correct financial decisions, thus, it is important for students to be financially literate, especially when financing their own education. Student uncertainty about how much to borrow for college might lead to poor financial outcomes.

Chen and Volpe (1998) surveyed 924 college students from different universities in order to gauge their financial literacy; they found correct responses accounted for only 53 percent of the questionnaire. Sometimes even parents are not financially literate enough to advise their children on financial issues. Perna (2008) collected data from a questionnaire made to 15 public high schools in five different states and found that parents from low-resource schools usually advised their children not to get student loans, whereas the opposite was true for middle- and higher-resource schools.

Christie and Munro (2003) reported that many students were unaware of the benefits and costs of obtaining a higher education. For example, in their study, 17 out of 49 students reported that although their parents saw attending college as something normal or expected, they never discussed the actual implications of such an act. It seemed that both the parents and the students simply assumed that the economic benefits of attending college always happened without even contemplating the actual expenses.

Avery and Turner (2012) suggested that college students should consider many factors, such as expected degree completion, college major, and expected lifetime earning when evaluating the optimal amount to borrow for college. The college major is crucial in assessing how much to borrow, because different majors offer different returns on investment, and therefore offer different likelihoods of paying off student loans.

Making the loan decision

Carnevale, Cheah, and Hanson (2015) investigated the economic value of undergraduate college majors by looking at factors such as earnings and employment status.