Student debt has reached epic proportions. Treasury Secretary Steven Mnuchin got that part right this week, when he recommended that colleges deliver mandatory financial education as a solution to the college loan crisis.
Mnuchin’s advice follows a deceptively simple script: Student debt is plaguing young people and their families because they don’t understand the true price of college. American families have the power to solve our national problem, as he sees it; they just need to watch their own accounts.
As a cultural anthropologist who studies the financial lives of American families, I’ve dedicated my life to helping students understand how borrowing, spending and investing have shaped their lives. In general, I’m bullish on financial literacy. But when I hear a public official tell us that it’s the solution to the student debt crisis, I know that advice is both morally and intellectually bankrupt.
When Mnuchin, and leaders at the Department of Education advocate for financial literacy, they are placing responsibility for a critical national problem on the shoulders of students and their families — and ducking responsibility themselves. Advocating for colleges to offer financial literacy programs demands nothing from those in power.
Mnuchin should acknowledge that financial literacy is not a real solution. First, most students and parents facing the high cost of college do not make enough to cover the costs without compromising their futures. Since the 1980s, wages have stagnated, while college tuition skyrocketed and room and board costs have doubled. In that time, the price of attending college increased nearly eight times faster than wages. No amount of financial education will change these important facts.
There’s a more basic problem, too. In college decisions, students and parents look not only at the costs, but also at what schools offer young people as they develop. As Philip Fernbach, the co-director of the Leeds School of Business Center for Research on Consumer Financial Decision Making, and Abagail Sussman, an associate professor at the Chicago Booth School of Business have argued, when people face a major decision, such as where to go to college and how much to pay, they do not turn to the kind of mathematical formulas and abstract ideas they might learn in the financial literacy classes Mnuchin valorizes. They use specific information — for instance, about the records and reputations of different institutions — and are guided by priorities that they hold dear.
Of course, more education about basic financial concepts would help Americans. But the biggest benefit would be learning how loans can trap borrowers for years, especially if they are women and people of color. In higher education, women take on far more debt than men and have more difficulty paying it back. Race makes this condition worse. On average, black graduates — both female and male — owe almost $7,500 more than their white peers. This disparity nearly triples four years after graduation due to compounding interest and the high cost of graduate degrees, especially in for-profit institutions.
Financial education alone cannot level the playing field. Mnuchin says more information is critical to “empowering” students to make “optimal financial choices” in higher education. Today, there are no optimal decisions to make. Students and parents are forced to navigate a complex and confusing set of options to finance higher education. And they cannot know which jobs will best suit graduates’ interests or what the job market will look like after they do. College finance requires students and parents to be fortune tellers and financial analysts alike. As the sociologist Marianne Cooper has argued, the system asks far too much for basic lessons in financial literacy to address.
The federal government can fundamentally change the costs that weigh down students and their families. Democratic candidates Bernie Sanders and Elizabeth Warren are vocal advocates for tuition-free college. This is a good place to start. Free tuition would relieve the financial pressure on students and families so that they can focus on learning, not on the price of education.
Caitlin Zaloom is an associate professor of social and cultural analysis at NYU. Her new book, “Indebted: How Families Make College Work at Any Cost,” will be published by Princeton University Press in September. Follow her on Twitter @caitlinzaloom.