Report: Better Targeted, Not More, Information Needed To Help Financial Aid Consumers

Quick Takeaways:

  • A literature review conducted by Young Invincibles found that students and families have different ways of searching for and processing financial aid information;
  • More research is needed to determine the best way to deliver financial aid information to consumers, rather than just providing more information in general;
  • Consumers from lower socioeconomic backgrounds need information tailored to their education and financial literacy levels to better help them make decisions.

By Brittany Hackett, Communications Staff 

Providing more consumer information about college costs and financial aid will not be enough if the resources are not better targeted to the needs of students and families, according to a recent literature review from Young Invincibles (YI).

While there is an ever-growing amount of information about financial aid, previous YI research showed that “more than two-thirds of student loan borrowers misunderstood or were surprised by some aspect of their student loans.” Other YI research showed that nearly half of all recipients of federal financial aid were given inaccurate information about their aid or did not recall receiving any information.

In an effort to better understand what information students needs, YI conducted a review of literature on finance, marketing, and consumer research, focusing on how consumers search for and process information on comparable financial decisions, such as mortgages. These decisions are similar to higher education in that they are “infrequent, expensive, and impact the consumer’s long-term financial well-being,” the review notes.

“Overall, our review demonstrates that students and families have different information search processing skills,” YI wrote in the review. “Providing clear, simple, and specifically-tailored information will equip students and families with information to make better choices, but various other efforts must be made to ensure equity in access to higher education.”

The literature review looked at three areas:

  1. The inclination of consumers to search for information about consequential financial decisions;
  2. How they process this information once they have found it; and 
  3. How factors like socioeconomic status or education level impact information search and processing behaviors.

According to YI, the literature review showed that consumers are not likely to conduct extensive information searches for major financial decisions, despite the likelihood that such research would benefit them. Rather, “they use mental heuristics and biases in an effort to make higher education decisions,” which can lead to mistakes.

To address this, YI recommends first that researchers look more closely into the motivations of students and their families in researching how to pay for higher education, as well as what factors discourage them from doing so. Second, YI suggests four measures information providers can take to better convey information to consumers, including:

  • Taking steps to motivate consumers to actively engage in research about financial aid;
  • Making efforts to put financial aid information directly in the hands of consumers;
  • Having strong involvement of other parties like government agencies in disseminating consumer information; and 
  • Using information intermediaries like college counselors to give information to consumers, which would add value to the information.

Regarding how to better help consumers process financial information, the review showed that more consideration should be given in how to frame the information so it is accessible and useful. YI recommends providing "unambiguous and complete” information and not overloading consumers with large amounts of, or redundant, information about financial aid. The group also suggests things like presenting the information in both dollar and percentage terms and getting feedback from relevant consumer groups on how the quality of information can be improved. 

And finally, the review found that “individuals with lower educational attainment, financial literacy, and/or income levels are at a disadvantage with regard to their information search and processing capacity.” 

“These findings are disconcerting,” YI wrote in the review, “ because differing levels of capability with regard to information search and processing are directly related to college access and equality.”

The group offered several recommendations to better provide information to these populations, including:

  • Specifically tailoring information delivered this audience;
  • Making greater efforts to disseminate information to these consumers “to ensure an even playing field;”
  • Taking better into account the education level of these consumers; and 
  • Increasing the financial literacy of these students and families.

 

Publication Date: 6/11/2015


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