The conditions under which students ask for loans are not universal

Financial literacy. Being financially literate is vital in making correct financial decisions, thus, it is important for students to be financially literate, especially when financing their own education. Student uncertainty about how much to borrow for college might lead to poor financial outcomes.

Chen and Volpe (1998) surveyed 924 college students from different universities in order to gauge their financial literacy; they found correct responses accounted for only 53 percent of the questionnaire. Sometimes even parents are not financially literate enough to advise their children on financial issues. Perna (2008) collected data from a questionnaire made to 15 public high schools in five different states and found that parents from low-resource schools usually advised their children not to get student loans, whereas the opposite was true for middle- and higher-resource schools.

Christie and Munro (2003) reported that many students were unaware of the benefits and costs of obtaining a higher education. For example, in their study, 17 out of 49 students reported that although their parents saw attending college as something normal or expected, they never discussed the actual implications of such an act. It seemed that both the parents and the students simply assumed that the economic benefits of attending college always happened without even contemplating the actual expenses.

Avery and Turner (2012) suggested that college students should consider many factors, such as expected degree completion, college major, and expected lifetime earning when evaluating the optimal amount to borrow for college. The college major is crucial in assessing how much to borrow, because different majors offer different returns on investment, and therefore offer different likelihoods of paying off student loans.

Making the loan decision

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Carnevale, Cheah, and Hanson (2015) investigated the economic value of undergraduate college majors by looking at factors such as earnings and employment status. They reviewed 137 different majors, and results indicated that the highest-earning major was petroleum engineering with median earnings of $136,000, and the lowest-earning major was early-childhood education, with median earnings of $39,000.

However, few, if any, previous studies have examined how parents servicing their own student debt affects using education saving vehicles to save for their children’s college, as well as their decision to obtain student loans on behalf of their children

Arcidiacono (2004) used data from the National Longitudinal Study of the High School Class of 1972 to study the different returns that different majors offered. By using regressions, maximum likelihood estimations, and simulations, Arcidiacono (2004) found larger monetary returns for majors requiring mathematical abilities.

Effect of parental savings. Elliott and Beverly (2011) used longitudinal data from the Panel Study of Income Dynamics (PSID)-specifically the PSID’s Transition into Adulthood Supplement and the Child Development Supplement-to determine that child development accounts (CDA) increase college attendance and graduation rates.

According to Elliott (2013), parental savings positively affect the child’s ability to graduate college-even if savings are small. Parental savings can be constrained based on the number of children. For instance, using data from the 1983 to 1986 Survey of Consumer Finances, Yilmazer (2008) found that the parental support for a child’s education decreased as the number of children increased. Similarly, Steelman and Powell (1991) suggested that the ability of parents to save for their children’s educational future depended first on their total income, and then on the number of children they had, since their total income would need to support their total number of children.

Based on the review of literature, there appears to be little emphasis on parents. Parental attitudes toward student loans have a direct effect on the level of student debt their children take on. Previous research has examined the influence of parental savings on children graduating college and the factors that affect parental savings for children’s college. This research contributes to the literature by examining parental student debt and its affect on how parents view education financing.