A Tool for Student Loans and Advice for Your Financial Future
Few financial decisions are more daunting and potentially debilitating than taking out student loans to pay for college, which is one of the first times that most high school students are faced with a serious money-management choice – and it’s a biggie.
Why? It can leave students with a heavy debt burden once they graduate from college. “Kids are 17 years old, having made almost no financial decisions in their lives, and here’s this enormous financial decision to make: borrowing tens of thousands of dollars when they have never borrowed anything and having to deal with all the different nuts and bolts of that. They’re at a perilous moment and ripe for being taken advantage of too,” said Dr. David Musto, a professor of finance at the Wharton School of the University of Pennsylvania, and director of Wharton’s Stevens Center for Innovation in Finance.
Calculating Risk
Dr. Musto and his graduate students and colleagues at Stevens set out in the past few years to do something about it. In April 2024, they launched Finiverse, an app (available at finiverse.org) to help students navigate their college finances. With hands-on coding and consulting help from high school students in Philadelphia, the Finiverse team developed a tool to help students make informed decisions about their education and finances.
The app doesn’t just calculate loan debt, it calculates the risk of taking out the loan, helping students to imagine all the financial paths their lives could take after college when it’s time to pay those loans off. “Thinking about borrowing money to go to college and then paying it off after college are very high-dimensional problems to solve,” notes Professor Musto. “The goal was to build an app to help think through student loan decisions and build in all the things that in the real world will affect the experience of having borrowed money.”
The app (look for the Finiverse Instagram account to launch soon) allows users to explore a multi-verse simulation to see how taking longer to graduate could affect your financial future. It also provides insight into how income-driven repayment plans could save you a lot of money after college. And you are also able to compare the costs of four different colleges at once to assess the impact of grants and scholarships and see the actual difference between the sticker price of schools and the net price that you would actually pay, which could sometimes be far less.
In the end, says Dr. Musto, it is about empowering high school students with financial knowledge in the face of federal student loans that could easily exceed $30,000. “The big picture here is to help people make the decision that is best for them.”
Professor Musto, also the academic director of Wharton Global Youth’s Essentials of Personal Finance course for high school students, has become a deeper champion of financial literacy. With that in mind, he suggests the following four finance hacks – from student loans to credit reports — that high school students should understand before they graduate:
🤑 Know your student loan repayment options. “We have seen that few high school students know anything about income-driven repayment, a federal program that absorbs much of the downside risk of a loan (financial penalties for not paying the loan back on time),” notes Dr. Musto. “It is important to know about it both because they should use the program after college if they are eligible (if their loan payments are large enough relative to their incomes), and also because they should bear this downside protection in mind when deciding whether to take a [financial] risk in their higher-education choice.”
🤑 Contribute enough to your 401k. When you enter the work world, you will likely have the option to contribute to a 401(k), a retirement plan that allows you to contribute a portion of your salary to an investment account. “Many employers make matching contributions to your 401(k),” says Dr. Musto. “For example, if you contribute x% of your salary, your employer will also contribute x% of your salary, up to a limit, like 5%. If the limit is 5%, then you are throwing money away by contributing less than 5%, because then you don’t get as much free money as you can from your employer.”
🤑 Use your credit card wisely. When you buy something using a credit card, you are getting a small loan from a bank or other institution that allows you to borrow money to pay for the goods. If you don’t pay off your credit card loan within the billing cycle, you will have to pay additional interest on top of the original amount you borrowed to make your purchase. “The advice is to not borrow more than you can see for sure you will be able to quickly repay, because otherwise you risk falling into a debt spiral,” cautions Dr. Musto. “The big picture is that it is such a disaster to fall into a debt spiral in bad times that you need to steer a wide course around it in good times, not borrowing except in emergencies, so you can withstand bad times when they hit.”
🤑 Get rent payments added to your credit report. When you are first out on your own, chances are you will pay rent each month to live in an apartment or other type of residence. Keeping up with your payments can help your credit score, which is a number that determines your credit-worthiness, or how likely you are to repay your debts. Your credit report shows your credit history. “You should get your rent payment on your report because a record of making payments on time will feed right into your credit score and your credit access,” suggests Dr. Musto. “There are apps that help you do this (Bilt) and you can also go right to the websites of the credit bureaus (Experian).”
Conversation Starters
Help Dr. Musto develop the Finiverse app. Try it out and let us know what you think in the comment section of this article. What do you like? What would you change?
If you have had to navigate the student-loan landscape, what has been the biggest challenge? What would you like help with?
Do you have access to financial education in high school? Do you feel prepared financially for your future? Why or why not?
As a member of a 3 child family, and also being the oldest, I hold an unspoken responsibility to care for my finances and to be able to live my life independently. At the same time, my parents are busy supporting my other younger brothers. Knowing this experience, I can expect other eldest siblings to face similar pressures, leading to even more stress and worry about their future finances.
Even if we attend high school nearly every day and take external education outside of school, none of these educations teach the basics of personal finance such as where to get loans, how loans work, how to get loans, what kinds of loans to trust/not trust, and more. Since basic school education and other external ones do not teach financial knowledge, I hope apps like Finiverse allow us to learn all these concepts and apply them in our lives to ensure we take care of our finances as safely and efficiently as possible.
While Finiverse is an app designed to help students calculate their loan debt and assess risks in different loans and financial paths, one aspect I can see improvement: is the education about basic financial concepts. Every student who wants to know how to calculate loan debt and assess risks and financial actions must first know what they are and how they work. If there are information bubbles to teach users about the very basics of finance in a simple and concise manner within the Finiverse app, students will learn about them before calculating their finances and hold a stronger understanding of financial concepts that they will require for the rest of their lives.
This article raises a major issue in the status quo, which is the massive financial decision that it is to take out student loans, and more specifically the informational bubble there is for those who have to make that decision. The topic of federal student loans has been gaining more traction in the news recently as plans to forgive federal student loan debt are enacted within the government, but a massive informational gap still remains. Further, this issue becomes perplexing when one realizes that 43.2 million borrowers have student debt, and the average federal student loan balance is $37,088 (Education Data Initiative, March 2024). So many Americans suffer from outstanding federal student loan debt, yet there is little information compiled to help decide whether or not to take out student loans in the first place. This raises a complex question: how can there be so many people that make the same crucial decision with so little information on it?
This information bubble that exists is one that scares me. In the status quo, I am expected to be able to make an extremely important financial decision without being given the knowledge that would ensure I make the best decision. This leaves it all in my hands to chase the knowledge out there, which is possible, but a terrifying prospect nonetheless considering the magnitude of the decision, and one that feels unnecessary because of how common this predicament is. The data is certainly out there, but why is it not compiled into a place that makes it easy to understand, and easy to access, especially considering that so many have made this same momentous decision? I am left without support from my school, as there are little to no finance-related classes or counseling that could help, and must rely solely on myself and the help of others who also may not be the best equipped to give advice in the first place. This unfortunate status quo is actively hurting so many high schoolers, especially those who struggle to access the information that is already out there to begin with.
Upon reading this article, it becomes clear that, fortunately, the status quo is rapidly changing, and apps like Finiverse are at the forefront of this shift. Information is rapidly becoming more accessible for all. This is an extremely important shift when one considers that so many currently struggle to pay off their student loan debt, implying that more knowledge at the time could have helped prevent these problems. Finiverse can help change this unfortunate reality by ensuring that borrowers are making the best decision for their lives, and therefore experience significantly less difficulty when the time to pay off their loans finally arrives. I think that Finiverse is reflective of a change that was long in the making. More now than ever, it is slowly becoming a necessity for high school students to be financially educated in order to ensure the best for their futures. As a part of this group of high schoolers, I find it amazing that more tools are becoming available for me to educate myself financially, and so when the time comes for me to decide on student loans, I can be assured that I am making the best decision for myself with the maximum amount of information available.
Drake’s article offers an insightful look into the use of potential financial tools for managing student loans and emphasizes the importance of financial literacy among young adults. This discussion is timely, considering the growing student debt crisis and economic uncertainty faced by many graduates. This articles focus on practical, actionable advice and the integration of technology in financial planning provides a much-needed roadmap for navigating these challenges.
There is a necessity of financial education. The article underscores a flaring gap in our education system: the lack of comprehensive financial education for young adults. Many students graduate with little understanding of how to manage their debt or plan for their financial future. Drake’s article emphasizes the need for financial literacy, urging the need for change in how we prepare the younger generation for financial independence. Financial literacy isn’t just about understanding how to repay loans; it’s more about building a foundation for lifelong financial health. So it is important ti integrate financial education into the curriculum at all levels, equipping students with the knowledge and skills they need to navigate a complex financial landscape.
Drake’s emphasis ont he role of digital tools in managing student loans is particularly compelling. these tools can provide personalized insights, simplify complex financial information, and offer real-time recommendations, which makes it ultimately easier for borrowers to understand their financial situation and make informed decision. The adoption of such technology can democratic access to financial management resources, enabling even those with limited financial backgrounds to take control of their debt and plan effectively for the future.
Drake also encourages a shift from a reactive to a proactive approach in financial planning. By highlighting the importance of long term financial goals, such as saving for emergencies and retirement, Drakes articles stresses the need for a holistic approach to financial management. The stance is essential in an era where economic uncertainties and market volatility can significantly impact individual financial stability. By planning ahead and considering the long-term implication of their financial decisions, young adults can build a more secure and resilient financial future.
Thank you, Diana, for an insightful look into up-and-coming solutions and advice for teen personal finance. I think our future finances, heading into college and beyond, are causing us all some sort of anxiety and should be considered personally as soon as possible.
Those who know me know that I am an avid enjoyer of golf. Those who know me better know that I especially appreciate the life lessons that can be learned through playing the sport. One such lesson is that, rather than trying to manage all the variables, players should attempt to control only the things that they can control. A redundant rule of thumb, perhaps, but a fundamental truth in both the sport and in life. Controlling “only what you can” in golf means understanding your statistics, creating a repeatable routine, and practicing the stock shots that will be used frequently around the course. In equal parts, controlling “only what you can” means to stop trying to manage the weather, other people, and the course environment.
I think that is what makes Dr. Musto’s advice, and the research team’s Finiverse, so innovative. Like that fundamental rule in golf, it actively promotes teens to focus on “what they can control,” rather than spending their time on external variables that may only lead to frustration and an unprepared future. Perhaps no one can control the financial situation that they are born in, but they can control their resulting wealth through a 401(k). Perhaps there is no changing the current situation with college tuitions, but teens can control their familiarity with loans and loan payment options. Essentially, this new app and accompanying advice is inspiring young adults to “do what they can, with what they have, where they are” — in a slightly modified version of Theodore Roosevelt’s words.
Of course, there may be more things to consider in the world of teen personal finance, such as taxes, insurance, and vehicle ownership. But to me, Finiverse seems like a great beginning to promoting financial literacy for teens as they transition into adults. Teeing it up, so to speak, for the eventual drive of personal finance that will propel teens into their future.