[Congressional Record Volume 157, Number 91 (Thursday, June 23, 2011)]
[Senate]
[Page S4040]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
COLLEGE LIFE ACT
Mr. AKAKA. Mr. President, yesterday I introduced the College Literacy
in Finance and Economics Act--the College LIFE Act. This bill is a
response to the dire need in our country for greater financial literacy
among young adults.
To be financially literate is to possess one of the most empowering
life skills that an individual can have. Those who have a sound
understanding of personal finance and economics are better prepared for
the many pivotal moments that they encounter in life where decisions
about money must be made. Sound decisionmaking in those instances
separate the financially literate from the financially illiterate.
Those who effectively evaluate their financial choices, wisely manage
their personal finances, and budget and save live more financially
stable and secure lives. Those who make poor decisions about money live
without financial certainty and become vulnerable to anticonsumer
business practices and unscrupulous lenders.
Financial independence begins during or immediately after college for
many of us and brings with it new opportunities and challenges. Before
we buy a home, put a child through school, or retire, we make choices
about purchasing a car, buying with credit in lieu of cash, and
balancing our ``wants'' and ``needs'' while struggling to extract rent
out of our first few paychecks. From that point on, financial choices
increase in cost and magnitude. Financial decisions made and habits
developed as young adults dictate whether we go through life on sound
financial footing and are prepared for unforeseen financial obstacles.
Given the tremendous importance of early adulthood financial choices
and actions, it is extremely troubling how unprepared young adults are
for these challenges. Too few students have opportunities to learn
about personal finance or economics before they enter college. The
Council for Economic Education's most recent Survey of the States found
that only 21 States require students to take a class in economics as a
requirement for graduation and only 13 require a course in personal
finance. Parents, moreover, are often unreliable sources of financial
education because many are financially illiterate themselves. For
example, the National Foundation for Credit Counseling's fifth annual
Financial Literacy Survey found that 76 percent of adults recognized
that they could benefit from the advice of a financial professional
regarding everyday financial questions.
Even as we acknowledge widespread financial illiteracy among young
adults, we allow students in higher education to take on alarming
levels of debt during college. Borrowing to pay for school has become
the norm. Two out of every three undergraduates receive some type of
financial aid. At for-profit colleges, 96 percent of students borrow to
pay for school. These trends have led to over $100 billion in Federal
educational loans being originated each year. When these borrowers
graduate, they do so with significant student loan debt, with the
median over $23,000. The Department of Education estimates that over 36
million Americans have outstanding Federal student loan debt that, when
combined, totals over $740 billion. And yet, because of the steep
upward trend in college tuition, which in the last decade has risen
each year by 5.6 percent beyond inflation, students commonly rely on
credit cards on top of their student loans to pay their way through
college. Even as far back as 7 years ago, 56 percent of dependent
students had a credit card in their own name.
The consequences of this culture of borrowing in higher education are
clear and concerning. The most recent cohort default rate, CDR, on
Federal student loans was 7 percent, indicating that large numbers of
young adults are failing to effectively manage their debt. The average
CDR for proprietary colleges alone is 22.3 percent. Meanwhile, the
average student credit card balance rose from around $1,400 in 2002 to
$2,000 today. Given what we know about student financial literacy and
capability, this is not surprising. For example, a Charles Schwab study
in 2007 found that only 45 percent of teens know how to use a credit
card and even fewer--just 26 percent--understand credit card fees and
the concept of interest.
The increase in Federal educational lending and student debt can be
interpreted positively. I am happy to see young people continuing on to
college in numbers that I would never have imagined when I graduated
from the University of Hawaii in 1952. For our best and brightest,
college continues to be a stepping stone on their paths to becoming
future leaders. For millions of others today, however, college simply
and rightfully represents an opportunity for better lives for
themselves and their families. But, the ever-rising cost of education
is a reality that we must address. We are allowing--and even
encouraging--students to become borrowers and consumers. It is our
responsibility, therefore, to ensure that these young adults have the
knowledge, skills, and capability to manage the consequences that come
with their financial decisions. Unfortunately, we are not doing enough.
The College LIFE Act begins to address this clear and urgent void in
early adulthood financial literacy and economic education. It would
provide financial literacy counseling to all university-level students
who take out federal educational loans when they begin and leave
school. First receipt of a student loan and departure from school are
two prime teachable moments in the lives of young adults. In addition,
they are two opportunities for individuals to learn the importance of
responsible financial behavior without those lessons coming at their
own expense.
Financial literacy counseling under the College LIFE Act would teach
the financial education core competencies--earning, spending, saving,
borrowing, and protection--developed by the Financial Literacy and
Education Commission. Existing loan counseling already provides student
borrowers with valuable information about the terms, features, and
common pitfalls of educational loans. This financial literacy
counseling would complement existing activities, and the College LIFE
Act specifies that financial literacy loan counseling may be provided
in conjunction with current counseling requirements.
I thank my colleague in the House of Representatives, Congresswoman
Sheila Jackson Lee of Texas, for joining me as the House sponsor of
this bill. I also thank my colleague from Iowa, Senator Harkin, who
chairs the Committee on Health, Education, Labor, and Pensions, for
lending his expertise to this bill in the areas of financial literacy
and student debt in higher education, including at for-profit colleges.
I will continue to work with my colleagues to enact the College LIFE
Act. I call on them to join me in support of this legislation and other
efforts to improve financial literacy in America.
Thank you, Mr. President.
The ACTING PRESIDENT pro tempore. The Senator from Colorado is
recognized.
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