At Harbert: Research
Jitka Hilliard J.K. Lowder Family Professor Department of Finance
The Less You Know The More You Owe
A recent study from Harbert and financial literacy. As the cost of a college education in the U.S. surges, the average student loan borrower carries more than $37,000 in debt. Many struggle with repayment, for years — even decades. Worse yet, many default. "Financial Literacy and Student Debt: Survey of College Students," led by Professor of Finance and J.K. Lowder Family Professor points to a surprising connection between crushing student debt Jitka Hilliard along with recent M.B.A. and M.S. Finance graduate Paul Davila, underscores the necessity of early financial literacy education to keep future college students out of the student loan mire. The researchers surveyed 31,000 Auburn undergraduates asking six financial questions — about risk and diversification, compound interest and mortgages, among others. The result: students with little or no debt had a better understanding of
financial basics than those carrying substantial loans. Hilliard calls this one of the most unexpected findings of the study. “We had anticipated that students taking on debt would possess a stronger grasp of financial concepts. However, our research showed that this was not the case, which was both surprising and concerning,” she said. The evolution and current state of the student loan system hasn’t helped matters. It started in 1958, when the Na- tional Defense Education Act began offering student loans to promote careers in engineering, science, and education — a response to the Soviet Union’s launch of Sputnik. In 1965, the Higher Education Act, or HEA, broadened student loans to cover all academic majors. In 1992, even after a Senate report had exposed waste, fraud, and abuse within the student loan system, Con- gress reauthorized the HEA, allowing students to access new, unsubsidized
loans regardless of financial need. By 1995, the U.S. Treasury was authorized to issue loans directly, driving student debt to $187 billion. In the past 12 years, that number has skyrocketed to $1.7 trillion. So, what are the lessons here? What can be done? “Our findings underscore an important issue: many students, especially those taking on significant debt, lack basic financial literacy,” Hilliard said. “The rising concern over student debt raises a critical question: do students fully understand the financial obligations they are committing to? Our research suggests they do not, highlighting the need for earlier financial education, perhaps starting at the high school level. By equipping students with a better understanding of loans, we can help ensure that student debt serves its intended purpose — making higher education more accessible and manageable.” HM
8 Harbert Magazine, Spring 2025
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