Crushing Debt or Savvy Strategy? Financial Literacy and Student Perceptions of their Student Loan Debt

Almost three quarters of American college students use loans to fund their college education, although according to public discourse student debt is a critical problem. Grounded in social reproduction theory and consumer socialization theory this study examines the influence of financial literacy on students’ college financing decisions, perceptions of student loan debt, and education-related behavior. A sample of 429 undergraduate students selected using systematic cluster sampling from a large public university in the southeast completed a survey containing closed and open-ended questions. Participants reported moderate levels of financial literacy (72.3%) and student loan awareness (62.7%). Only 20% of students in this sample used estimated college expenses to determine how much to borrow. Students with higher levels of financial literacy were more likely to view their student loan debt positively as a financial strategy, were less concerned about their ability to repay their loans and made better financing and education-related decisions compared to students with lower levels of financial literacy. Students with lower levels of financial literacy were more likely to make counterproductive decisions. Student loans are an increasingly necessary strategy for educational attainment; their effective utilization requires a level of financial literacy which most students do not possess.