Student Debt and Financial Wellbeing

How Can Financial Counselors Help To Better College Students’ Financial Well-being?


Financial burdens are the second largest source of stress for college students, ranking just behind academic performance.  Many researchers find that student loans are positively related to ones’ financial stress and negatively affect financial well-being.  College students are not the only group affected by student loan debt. Many carry their student loan debt years after graduating from college. This leads us to a question: “Is there any work financial counselors can do to prevent families and their children from borrowing too much student loan debt and thus better their financial well-being?”  Searching through research literature, we find some encouraging findings and promising tips addressing this question.  

Summary of Findings

  • Using two separate databases: the National Financial Capability Study (NFCS) and the 2017 U.S. Survey of Household Economics and Decisionmaking (SHED), studies find that holding student loan debt is negatively and significantly associated with the financial well-being of borrowers (Henager & Wilmarth, 2018; Korankye & Kalenkoski, 2021). Other studies indicate that freshmen, female students, students with low net-worth or investments, and those with student loan debt are more likely to experience financial stress (Britt et al., 2015; and Choi et al., 2016). 
  • Financial counseling is shown to have statistically significant positive impacts on people’s subjective financial knowledge and financial attitudes. Comprehensive financial counseling brings more benefits to students and their families than single-issue-focused financial advising (Britt et al., 2015; and Choi et al., 2016).
  • Using data from the 2009 and 2012 U.S. National Financial Capability Study, studies find families who seek financial advice are more likely to save for their children’s college education. In particular, seeking financial advice relating to savings/investments, insurance, and tax planning is positively associated with a household’s decision to allocate money for their children’s postsecondary education. (Korankye et al. 2021)
  • Through a natural experiment, Bettinger et al. (2012) show that students with the assistance of financial professionals are more likely to complete FAFSA and apply for federal aid. Kofoed (2017) found that students with lower to middle-income, white, male, and independent parents are less likely to complete FAFSA even when they are eligible for aid. The author estimates that each year an applicant forgoes $9,741.05 in total aid. This includes $1,281.00 from Pell Grants and $1,016.04 from institutional grants, which are free money.  McKinney et al. (2015) indicate that later filers, on average, receive less total state and institutional grant aid compared to students who filed earlier. Attending college part-time and delaying enrollment into college after high school were strongly associated with not filing a FAFSA and filing late. 
  • Festa et al. (2019) used a sample of 204 students at a large public university in their experiment. Their findings show that the long-term cost of education could be significantly reduced if interest rates are made more noticeable on financial-aid documentation.  By prominently displaying an interest rate next to each loan option, it reduces people’s cognitive load and increases their propensity to fund education more through work and less through high-cost private student loans.


Key Takeaways or Insights 

With the mounting societal issues surrounding student loan debt and the state of financial well-being, it is delightful to know from these research findings that financial counselors can make positive impacts in many ways. Indeed, financial counselors have important work to do!    

Furthermore, these research findings shed light on which financial counseling work is proven to be effective, such as offering education planning services by a properly licensed counselor or assisting with FAFSA application forms and loan selections.  Surprisingly, some of the most significant impacts that financial counselors can make are achieved in seemingly small things– mentioning education planning to clients who have young children seeking advice for savings, investment, or tax planning or a few words encouraging clients and their college-age children to complete the FAFSA. 


What Financial Counselors Can Do?

Include education planning in the conversation 

Education planning in advance greatly reduces families’ reliance on student loans. Financial advice could be an invaluable intervention to encourage households to save for college. It is important that financial practitioners who are properly licensed prompt families to save for college while considering other financial factors. It is also important to note that for households with low income, low education, high-risk aversion, or low subjective financial knowledge, appropriate intervention strategies may be needed to better serve them.

Properly licensed financial counselors can help these families in setting appropriate financial goals and devising strategies to achieve them, or referring them to experts in this area. 

Encourage and assist with FAFSA Application 

The Free Application for Federal Student Aid (FAFSA) is not just a loan application. Completing the FAFSA application allows many students to access free money such as federal grants, institutional scholarships, state aid and school aid, as well as the work-study program.  

AFCs should help first-year students and their families understand the value of filing the FAFSA in a timely manner. Secondly, counselors could assist clients in determining ways to meet the expected family contribution (EFC).  Financial Counselors should keep in mind that studies have shown lower to middle-income, independent, white male students may have lower FAFSA completion rates. Completion will increase their chance of receiving more and better funding.   

Present student loan information in a more understandable way

The complex nature of loan documents adds more psychological and cognitive burdens onto students and their family in making wise loan selection. People often have trouble knowing how much they owe and whether they can afford a loan. With small efforts and minor changes, financial counselors can provide great help in this process. 

AFCs should take particular care to ensure their clients or students note and fully understand the interest rate of each loan being considered so that optimal decisions can be made. 

Help plan for the unmet needs

When course-related materials can’t be purchased via the bookstore on campus, students who have no other financial resources find it difficult to secure funds to make timely purchases for their studies.  Lack of alternative funding channels forces them to deplete their budget and emergency funds, fall behind in their school work, thus adding more financial and academic stress. 

AFCs can guide clients in using the CFPB’s Paying for College tool, to identify and plan for the uncovered education costs after student loans, grants and scholarships.   

Bettinger, E. P., Long, B. T., Oreopoulos, P., & Sanbonmatsu, L. (2012). The role of application assistance and information in college decisions: Results from the H & R block FAFSA experiment. The Quarterly Journal of Economics. 127(3), 1205–1242.

Britt, S.L., Canale, A., Fernatt, F., Stutz, K., Tibbetts, R. (2015). Financial Stress and Financial Counseling: Helping College Students. Journal of Financial Counseling and Planning. 26(2), 172-186.

Choi, S., Gudmunson, C. G., Griesdorn, T. S., Hong, G. (2016). Assessing College Student Needs for Comprehensive Financial Counseling. Journal of Financial Counseling and Planning. 27 (2), 158-171.

Festa, M. M., Holderness, D. K., Neidermeyer, A. A., Neidermeyer, P. E. (2019). The Impact of Financial-Aid Format on Students’ Collegiate Financing Decisions. Journal of Financial Counseling and Planning. 30 (1), 27-43.

Henager R., Wilmarth M. J. (2018). The Relationship between Student Loan Debt and Financial Wellness. Family and Consumer Sciences Research Journal.

Kofoed, M.S. (2017). To Apply or Not to Apply: FAFSA Completion and Financial Aid Gaps. Res High Educ 58, 1–39.

Korankye, T., & Kalenkoski, C. M. (2021). Student Loan Debt and Financial Well-Being of the Borrower: Does It Matter Whom the Debt Is For? Journal of Personal Finance, 20(2).

Korankye, T., Pearson, B., Salehi, H. (2023). Financial Advice Use and Saving for Children’s College Education: A Propensity Score Matching Approach, Journal of Financial Counseling and Planning, 34(1), 96-111.

McKinney, L., Novak, H., (2015).  FAFSA Filing among First-Year College Students: Who Files on Time, Who Doesn’t, and Why Does it Matter? Res High Educ 56, 1–28. 

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