Test Your Student Loan Literacy and Financial Literacy

December 18, 2019

The U.S. Department of Education administered a short test of financial literacy and student loan literacy to more than 100,000 undergraduate and graduate students.

Only about one in six students were able to answer all six questions correctly.

Check your financial literacy and student loan literacy skills on the same test.

## Financial Literacy Questions

1. Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After 1 year, how much would you be able to buy with the money in this account?

a. More than today

b. Exactly the same

c. Less than today

2. Suppose you had \$100 in a savings account and the interest rate was 2 percent per year. After 5 years, how much do you think you would have in the account if you left the money to grow?

a. More than \$102

b. Exactly \$102

c. Less than \$102

3. Is this statement true or false? Buying a single company’s stock usually provides a safer return than a stock mutual fund.

a. TRUE

b. FALSE

c. Don’t know

## Student Loan Literacy Questions

1. If a borrower is unable to repay his or her federal student loan, what steps can the government take to collect the debt? Can the government report that the student debt is past due to the credit bureaus?

a. No, the government cannot report debt past due to credit bureaus

b. Yes, the government can report debt past due to credit bureaus

2. If a borrower is unable to repay his or her federal student loan, what steps can the government take to collect the debt? Can the government have the student’s employer withhold money from his or her pay (garnish wages) until the debt, plus any interest and fees, is repaid?

a. No, the government cannot have the employer withhold money from the borrower’s pay

b. Yes, the government can have the employer withhold money from the borrower’s pay

3. If a borrower is unable to repay his or her federal student loan, what steps can the government take to collect the debt? Can the government retain tax refunds and Social Security payments until the debt, plus any interest and fees, is repaid?

a. No, the government cannot retain tax refunds until debt is repaid

b. Yes, the government can retain tax refunds until the debt is repaid

## Answers to the Financial Literacy and Student Loan Literacy Questions

The correct answers to the financial literacy questions are as follows:

1. (c) Less than today. The purchasing power of savings decreases when the interest rate is lower than the rate of inflation.

2. (a) More than \$102. Interest causes the balance of a savings account to grow each year.

3. (b) FALSE. Diversifying an investment by investing in several stocks yields greater safety and less volatility than investing in a single stock.

The correct answers to the student loan literacy questions are as follows:

1. (b) Yes. The government can report unpaid federal student loan debt as past due to credit bureaus.

2. (b) Yes. The government can garnish the wages of borrowers who have defaulted on their federal student loans.

3. (c) Yes. The government can offset (retain) income tax refunds and Social Security retirement and disability benefit payments of borrowers with federal student loans in default.

A good place to start:

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