Finances 101: Iowa college students now required to take 'cash course'

I am very confident in managing my money and do not need help.

That is one answer students can pick in response to a self-assessment question about their money management skills as part of new financial literacy training required — for the first time — for all first-year students across Iowa's public universities in the new academic year.

But claiming to know it all won't get you out of the Board of Regents' inaugural financial literacy program, which is being rolled out differently across the campuses but seeks to achieve the same mission — to impart on students lifelong financial skills; get them through college with minimal debt; and help them achieve the greatest bang for their buck.

'You will be happy to know that Iowa is making history by being the first one in the country to put this program in place for all three public universities in the state,' Tahira Hira, an Iowa State University finance and economics professor who's led the financial literacy initiative, told regents in June. 'I know there are many other institutions who are watching our program.'

Students joining the University of Iowa and University of Northern Iowa ranks in August must complete the 'cash course' in the fall semester — UI students have four weeks to finish and UNI students have to get it done before the end of the term. Iowa State is making its students finish the course within four weeks in the spring semester, said Jennifer Schroeder, program coordinator for the ISU Student Loan Education Office.

'We felt that there's just a lot happening in terms of transitioning from high school to college — getting acclimated to the university — that to try and throw on something that we believe is a very important and somewhat overwhelming or confusing topic on top of all that other stuff would just maybe lose the point,' Schroeder said. 'So we made the decision to have it go into effect in the spring semester.'

Students, regardless of campus, automatically will be enrolled in the program. UI students, for example, must take it as part of their 'Success at Iowa' orientation education — which is required for all new undergraduate students and includes information on alcohol-harm reduction, sexual assault dangers and bystander intervention.

UI students who don't finish the course receive an 'incomplete' on their transcript.

The financial literacy curriculum, provided by the National Endowment for Financial Education's CashCourse at no cost, was tested on the Iowa State campus last spring. The university, at that time, didn't have the ability to automatically enroll students, but it attracted about 400 volunteers out of 8,000 possible participants.

Those student guinea pigs provided feedback on what content was helpful and what was not, and reported back on knowledge and skills they gained.

Most liked portions of the training that covered budgeting and money management or financial aid and student loans. Fewer liked a module on car buying and banking. The percentage of participating students who reported feeling confident in their money management skills soared from 20.7 percent before the training to nearly 60 percent after.

'I believe that everyone should have to take a class that includes this information,' one of the test students said, according to Hira's report to regents.

All three universities will offer four concepts as part of the financial literacy training. They include:

1 Budgeting and money management

2 Spending and financial decision making

3 Credit and debt

4 Financial aid and student loans.

Iowa State is offering an option on banking and cars.

The training has been a long time coming, as regent leadership for years has urged the universities to create a mandatory, in-class course on financial literacy. Although this new training is online and not in a physical classroom, it provides information about additional support services — including peer mentors and campus resources.

Those in-person services have been available for interested students for years. But, regent leadership has argued, the students seeking counsel typically are not the ones who need it.

And financial literacy among undergraduates is becoming increasingly important as tuition rates continue to climb and as lawmakers slash support for higher education.

Proposed 2022 tuition rates for in-state students:

University of Iowa: $10,537

Iowa State University: $10,457

University of Northern Iowa: $8,237

Source: Five-year tuition proposals presented to the Iowa Board of Regents

'As they transition into adulthood and living on their own, it is a good time, and it's going to be important as costs rise, maybe funding continues to decrease, and they're going to have to come up with a plan or other avenues to make ends meet,' ISU's Schroeder said. 'So knowing what all that means and how to figure out what your options are and how to make those decisions — that's very important information for our students to have.'

Even with increases in tuition, Iowa's public universities have been driving down student debt through a variety of efforts — including helping students graduate on time or even early. But administrators continue to urge more willingness to 'live like a student.'

'Just to get students to take some ownership of their finances and maybe advocate for themselves on a financial platform,' Schroeder said. 'What we find a lot of times is that — especially with our freshman students — they're really disengaged from the whole process. Mom and dad are handling it all for them.'

This training, she said, among other things, aims to put 'the leadership and the ownership of managing your finances in the hands of the students.'

'It's letting them know that it's yours to do,' she said. 'This is really your money, your implication, your consequences for the decisions you make.'

University students' financial sources by family's adjusted gross income, in 7 brackets

Source: Iowa Regents. Chart by John McGlothlen / The Gazette

Module 1: Budgeting and money management

True or false, Lawrence is having trouble separating his wants from his needs. So he asks his roommate if buying lunch every day at a deli near work is a want or a need. His roommate's answer was, 'Obviously it's a need. You have to eat!'

Iowa State students embarking on the training's first module covering budgeting and money management have to consider that question, among others, as part of a pre-test.

The answer is 'false.' Eating out at a deli is not a need, according to the curriculum.

In the subsequent educational module on budgeting basics, the training dives into what some might consider true fundamentals of money management — income versus expenses, needs versus wants, fixed versus flexible spending, and how to keep track of it all.

Eating is, the training points out, necessary. And yet, 'you do have some control over what you spend.' It asks students to consider these tips: biking to class, learning to cook, nixing cable TV or swapping fans for air-conditioning.

"It is a lose-lose when someone borrows a loan that they can't possibly repay. They lose because they trash their credit and they trash their finances. We lose because we have to write the loan off.'

- Steven McCullough

President and CEO of Iowa Student Loan

The charge, essentially, is to 'live like a student' — and administrators across Iowa's campuses have been pushing that mantra for years. ISU and UNI actually have campaigns out of their student loan and financial aid offices carrying the 'live like a student' label.

'Live like a student now so you don't have to later,' Iowa State's program advises on its home page. UNI's program urges students to live modestly by budgeting, setting financial goals and considering future implications of their spending today.

Put simply, the UNI campaign warns, 'Don't spend more money than you have.'

Excessive spending can come into consideration when students are applying for loans, according to officials. Some ask for more money than they need, driving up their debt and digging themselves a deeper hole, according to Steven McCullough, president and CEO of Iowa Student Loan, established in 1979 as a private, not-for-profit entity geared toward helping students obtain postsecondary education.

Iowa Student Loan offers scholarships and loans, and McCullough said it's in everyone's interest to make sure students don't borrow more than they need or than they can repay.

'When people borrow less and they're more financially savvy about it, they repay their loans,' he said. 'So it is a lose-lose when someone borrows a loan that they can't possibly repay. They lose because they trash their credit and they trash their finances. We lose because we have to write the loan off.'

Much of the federal, state and institutional aid made available to students is based on need. And although some students don't necessarily need the money they request, others do. Recent Board of Regents reports indicate the amount of student financial aid institutions are providing undergraduate students who demonstrate need is on the rise.

Nearly 15,000 Iowa residents in the regent system demonstrated need for financial assistance in the 2015-16 school year — 605, or 4.2 percent, more than the previous year. Iowa residents who demonstrated need received $46.6 million that year, an 11 percent increase, according to a board report.

At the UI, 55 percent of all undergraduate students who received institutional aid demonstrated need; at Iowa State, about 66 percent of all undergrads who got aid demonstrated need; and UNI reported about 78 percent of its assisted undergraduates demonstrated need.

Regardless of why a student borrows — whether it's need-based or not — loans create debt.

'While debt isn't always a bad thing — borrowing for college is a debt that pays for itself in the long run — you need to budget for repayment when you do borrow,' according to the first financial literacy training module, which asks students to make their own budget.

'Just as you make smart spending choices, you can make smart repayment choices.'

Institutional aid for undergraduate students by Regent University, 2007-08 to 2015-16

Source: Iowa Regents. Chart by John McGlothlen / The Gazette

Module 2: Spending and financial decision making

This section of the training asks students to look critically at their spending choices. They're charged with reflecting on purchases and thinking about why they made them.

One article they must read delves into 'The psychology of a sale.'

'Picture this,' the article reads. 'You're at a department store. You're a smart shopper so you've prepared a list of items you plan to buy and have budgeted accordingly. But as you venture toward the back of the store, you pass the clearance rack and spot a pair of jeans that have been reduced from $200 to $75. At a discount like that, the store's practically begging you to buy them, right?'

Exactly, according to the training. But that doesn't mean you should.

'Retailers depend on these sales techniques to move merchandise and get you to buy stuff you may not even want,' the article suggests, offering a series of sales tactics to 'watch out for' and tips to resist unplanned spending.

The deep-discount, bundling offers of free items if you purchase a larger quantity, time limits such as around the holidays, and scarcity with phrases such as 'while supplies last' are all techniques deployed to encourage thoughtless spending.

This section is rich with tips about how to plug spending leaks and stretch the dollar by, for example, leaving the credit card at home, carrying a refillable water bottle, carpooling or taking the bus or a bike, and seeking out free entertainment options on campus.

Tips also include eating more vegetarian meals, buying generic or in bulk, limiting coffee and alcohol, and negotiating rent increases.

'If you're living off campus and you have extra space, consider adding another roommate to help share the costs,' the training suggests.

Percent of undergraduates who graduated with debt, 2013-14 to 2015-16

Source: Iowa Regents. Chart by John McGlothlen / The Gazette

Module 3: Credit and debt

Even structured spenders and wary shoppers use credit and amass debt in their journey through college. But closely monitoring daily expenses can limit debt to the costs associated with getting an education — for students who take out loans.

The training suggests warning signs for credit and debt problems: paying only the minimum credit card bill; skipping some card or loan payments; maxing out the credit limit; or forgetting how much you owe.

And, it warns, students should check their credit report because other people will.

'It's not just lenders who look at your scores,' according to the training. 'Landlords do, and so do insurance companies. And, if you give them permission, potential employers can look at your credit report. So the way you use credit affects a lot more than being able to borrow.'

The training goes in-depth on education around credit card use — a primary way students spend — and the impact wieldy spending can have on a credit score.

'Think of your credit score as a kind of financial GPA,' according to one article students are tasked with reading for the training. 'Your goal is to keep improving it, and then maintain it when it's the highest you can achieve.'

The module also lays out costs of a loan, which many new students consider when embarking on their higher education journey. In the 2015-16 term, loans made up the biggest chunk of the Board of Regents' undergraduate financial aid pie — accounting for 48.4 percent of the assistance doled out.

'What we find a lot of times is that — especially with our freshman students — they're really disengaged from the whole process. Mom and dad are handling it all for them.'

- Jennifer Schroeder

Program coordinator for the ISU Student Loan Education Office

The average undergraduate loan award was $5,074 that year, representing a $76 increase over the previous year, according to a board report.

Still, school officials stress many students graduate without debt. The UI in the 2015-16 term reported 45 percent of all graduating seniors had no debt; ISU reported that figure at 38 percent; and UNI reported 30 percent graduated without debt.

Nationwide, 39 percent of seniors in the 2014-15 school year graduated without debt from public four-year institutions, according to the board report. The national average indebtedness for those who did graduate with debt was $28,100 that year, or $26,800 for graduates from public four-year institutions.

At Iowa's public universities in the 2015-16 term, UI's average indebtedness for those who left with debt was $26,557, ISU's average indebtedness amounted to $27,563 and UNI's average indebtedness came to $22,993. And those numbers have been improving in recent years — an important trend, officials say.

'Students with the highest levels of perceived debt are three times more likely to leave college before earning a degree,' according to the board report. 'Perception of debt and the resulting financial stress appear to influence students' decision to leave college.'

Average indebtedness of undergraduates with debt at graduation

Source: Iowa Regents. Chart by John McGlothlen / The Gazette

Module 4: Financial aid and student loans

This is the area university advisers have been focused on for years — educating students about financial aid potentially available to them and the wisest strategy for taking out loans.

University of Iowa, for example, for years has required students obtaining private loans to meet one on one with UI financial counselors. In the 2016-17 academic year, 2,200 students met with someone in the UI financial literacy program — 1,635 of whom were required, according to Sara Even, UI associate director of financial literacy, federal Pell grants, student loans and satisfactory academic progress.

Those mandatory meetings resulted in students reducing their loan requests overall by about $1.7 million, Even said. In the 2015-16 year, UI counselors met with about 1,573 students seeking private loans who then reduced their requests by a total of about $2 million after the consultations.

'We want to make sure students are borrowing out of a need and don't accept every loan being offered to them,' Even said. 'With the volatility right now and not knowing about tuition increases and when they will be, we want them to be thinking about how they will manage their resources for surprises like that.'

The online training lays out an argument for students to repay their loans 'in full and on time.'

'It should come as no surprise that you're legally required to repay your federal student loans,' according to the training, noting — beyond legalities — students who do will 'save money on interest, build a strong credit history and avoid the consequences of default.'

Even though Iowa's public universities have seen improvements in the percentage of students graduating with debt and the amount of debt, UI and UNI are reporting an increase in the percent of undergraduates receiving some type of financial aid. More than 77 percent of UI's undergraduate population in the 2015-16 term received aid, compared with 75 percent in the 2010-11 year.

UNI's rate grew from 86 percent of its undergraduates to 91 percent in the 2015-16 term.

'Everyone has money, everyone has questions and it's OK to ask questions when it comes to money,' ISU's Schroeder said. 'So really, (the financial literacy training) is kind of taking some of that intimidation or some of that fear out of asking questions and talking about money.'

l Comments: (319) 339-3158; vanessa.miller@thegazette.com

This story appears in the fourth edition of the Iowa Ideas magazine. Order a free copy here.

Iowa Ideas: Financial Literacy for College Students photo illustration shot on Monday, July 24, 2017. (Cliff Jette/The Gazette)

Tahira Hira (Iowa State University photo)