Association for Public Policy Analysis & Management

College students are increasingly relying on debt to finance postsecondary education. Key stakeholders such as the U.S. Department of Education, the Treasury, the Fed, state-level departments of education, and other institutions are currently discussing ways to inform students of postsecondary options in order to reduce debt burdens, especially for economically disadvantaged students whose parents may not be able to assist them. Particularly, economically disadvantaged students receive more grants but also use higher amounts of debt than their non-economically disadvantaged counterparts, and attend riskier, costlier institutions that generate lower payoffs.

An increasingly common policy to improve financial decision-making among students is mandating financial education in high schools, which exposes students to financial topics, including postsecondary financing and career choice, and provides them with the skills needed to make less costly financial decisions. It may reduce search costs and mitigate other behavioral biases triggering sub-optimal behavior. This policy has substantial buy-in, and although these mandates’ effects are not fully understood, preliminary research has found reductions in payday borrowing. Mixed results from the literature might be because some topics are not as salient to high school students as college financing.

I investigate whether financial education mandates affect postsecondary decisions among economically disadvantaged students using data on financial education mandates (Urban, Schmeiser and Collins 2015), data on institutional-level outcomes of former students (Default Management and College Scorecard databases), and restricted-use versions of the 1996, 2004, and 2012 Beginning Postsecondary Students Longitudinal Study (BPS). The BPS is a combination of survey and administrative data that follows a selected cohort of college freshmen for five years after they begin their postsecondary studies. The BPS contains extensive information about students’ finances as well as education outcomes. The advantage of the BPS is that while administrative data only captures federal financial aid use and education information, the survey data also captures other forms of debt (e.g. private student loans, credit cards, loans from family/friends). To my knowledge, this study is the first to employ the BPS to study financial decision-making among college students.

The empirical analyses use difference-in-difference models, exploiting variation across students within the same state before and after the mandate was implemented, and across students within the same cohort from states with mandates and states without mandates. I also interact variations of the mandate (e.g. how course was administered and if standardized testing in personal finance is required) to assess which implementation method(s) of financial education mandates may best serve students. Preliminary results suggest that financial education mandates may reduce the likelihood that students attend for-profit institutions, encourage attending institutions generating higher median earnings with lower cohort default rates, increase use of federal financial aid products, decrease use of credit card debt, and decrease hours worked per week while enrolled. However, financial education mandates seem to primarily affect non-economically disadvantaged students. My findings inform both the overall post-secondary effect of financial education, as well as what implementations are most effective in education policy.