The Effects of State‐Mandated Financial Education on College Financing Behaviors

Abstract

Abstract Students entering college have limited financial experience while making complex borrowing decisions. This paper examines a policy lever that may improve these decisions: high school personal finance graduation requirements. We use a difference‐in‐difference strategy to determine their effects on financial aid decisions of incoming freshmen at 4‐year institutions. Our results suggest financial education shifts students from high‐cost to low‐cost financing. The requirements increase aid applications and acceptance of federal loans, while decreasing the likelihood of holding credit card balances. Students from less affluent family backgrounds reduce their likelihoods of working and borrowers from more affluent backgrounds reduce private loan amounts.