According to figures published by the Consumer Credit Panel in the US, a student who leaves college with a $100 000 (R1.3 million) student loan is twice as likely to repay that debt than a student who leaves with less than $5 000 in debt.
Karan Goel, CEO and founder of GetSet, an online platform that connects university students encountering challenges with those who have recently overcome the same issues, says the context behind these figures is that a student with a larger loan is more likely to have completed college than one who has a lower loan amount.
Without a qualification, the student is less likely to be able to repay their loan.
Speaking at the 2017 Financial Literacy Summit in Chicago this month, Goel said the debate of free tertiary education is, in many respects, the wrong conversation.
“What is the point of free college if people don’t graduate?” he asks.
The challenges faced by students in the US are similar to the South African experience. Even if students receive funding, they often do not even start college, or they fall out of the courses early. The issue is compounded if they have borrowed money to attend tertiary education – leaving them with debt but no job prospects.
Ted Gonder, a Chicago-based social entrepreneur who was at the Summit, says: “In the US, 40% of students who are the first in their family to enter college do not graduate.”
His online platform, Moneythink, is aimed at providing relevant financial education to high school pupils who want to study further.
The low graduation rate could be due to a range of factors, but it is often closely tied to socioeconomic issues. Students from lower-income groups often have more financial responsibilities, for example, the money that was meant to go to transport to get to university is suddenly needed for a funeral or for a family member’s medical bill. Often, the immediate needs of the family require the student to drop out of formal study and take on a low-paying, unskilled job to make ends meet. There is also no safety net or community network to tap into.
Goel says he realised that what is needed is a reframing of the conversation to make it less about the cost of fees and more about the real cost of graduating.
“What does it take to earn the credentials that allow one to have a career and financial success? That’s what GetSet’s support platform delivers – support right when students need it.”
Through GetSet, Goel hopes to improve graduation rates, which will be good for students as well as their credit providers that will stand a better chance of having their loans repaid.
Gonder is fairly dismissive of general financial literacy programmes at schools and universities because, he says, most students are not that engaged with the topic.
“We tend to romanticise the idea of access to financial education, but people often don’t know what information they need or how to access it. While developing our technology, we realised how uninteresting students find financial content, so the challenge is how to make it relevant.”
Gonder’s platform provides real-time advice at key financial moments, such as when you open your first bank account or get your first paycheque.
This highlights one of the key challenges around delivering financial education.
A financially literate population is as important for society as it is for the individual making the choices. But how do you give people the information they need, when they need it?
Taking on debt is a good example – how many people understand that if they only pay off the minimum balance on their credit card, it will take them 20 years to pay back R10 000? Or if they finance their car over 72 months, it will be worth less than what they owe on it for the first five years?
How do we inform ourselves at that critical time and who do we trust with that information? Do we trust the bank, which will earn a 20% return on the credit card? Do we trust the car dealer, who can sell you a more expensive car (and earn more in interest) if it’s funded over 72 months?
Financial technology is creating the opportunity to make general financial education as well as specific information available when you need it.
Imagine an app that can sense when you walk into a car dealership, and so automatically sends you the appropriate information and questions to ask before you sign on the dotted line.
While one-on-one engagements are still highly valued by people who want to make financial decisions, developments in technology could provide broader, cost-effective and more frequent access, especially if they are able to provide the relevant information at the right moment.
Fisher-French participated in the 2017 Financial Literacy Summit sponsored by the Chicago Federal Reserve and Visa. She was a guest of Visa