The Impact of Financial-Aid Format on Students’

Collegiate Financing Decisions

Mackenzie M. Festa,a D. Kip Holderness Jr.,b A. A. Neidermeyer,c and Presha E.
Neidermeyerd

This study explored how an alternative presentation of loan information affects financial-aid decisions among
students (n = 204) at a large public university. Building from decision-aid literature and using an experimental
design, we found that when financial-aid forms were formatted in a way that makes interest rates more accessible
and salient, students tended to: (a) accept fewer high-cost private loans and (b) work more during the college
years. Results indicate that minor revisions in financial-aid documentation can have a significant impact on
students’ financial-aid choices. Those working in the fields of higher education and financial counseling and
planning can use this information to further educate borrowers prior to the encumbrance of student loan debt.

Keywords: financial aid, gender, higher education, student loans

W
ith the cost of college skyrocketing and student when providing financial-aid information to students (U.S.
loans reaching an average of $37,172 per grad- Department of Education, 2015).
uating student in 2016 (Picchi, 2016), both stu-
dents and institutions of higher learning are taking active This study investigates how alternative presentations of stu-
roles to educate themselves and their constituents regard- dent loan information affect the amount of financial aid that
ing the options available for financing higher education. is accepted by students. These presentations include dis-
Sallie Mae (2015) reported that 22% of higher education playing the cost of attending a university as either a point
costs in 2015 were financed through loans (both parental or a range, and then displaying the interest rate in multi-
and student), and another 11% were financed through stu- ple places or only in the financial-aid brochure. Our find-
dent income. These methods of paying for higher education ings indicate that prominently displaying an interest rate
differ substantially in terms of overall cost to the student in next to each loan option, as opposed to providing the same
both the short-term and the long-term (Hogan & Kroeger, information elsewhere, influences students to fund more of
2005). Financial advocates have called for restructuring the their education through work and less through high-cost pri-
student loan process to help students better understand the vate student loans. This finding supports previous research
burdens they are incurring (Johnson & Roten, 2015; Petulla, suggesting that simple changes in formatting can improve
2011; Smith, 2012). The complexity of financial-aid mate- decision-making by reducing cognitive load (Rose, 2002).
rials can overwhelm and confuse students, who may not We found that the formatting change had a particularly
recognize the long-term implications of their financial deci- strong effect on the financial-aid preferences of males, who
sions (Lobosco, 2016). With that said, the Department of were more likely to anticipate working to pay for their
Education and the Obama Administration suggested that education and less likely to rely on costly private loans
institutions of higher education adopt a standardized format relative to their female counterparts. These results highlight

a
Assistant Professor, Department of Accounting, College of Business & Economics, University of Wyoming, 1000 E. University Ave, Laramie,
WY 82071. E-mail: mfesta@uwyo.edu
b
Assistant Professor, Department of Accounting, College of Business & Economics, West Virginia University, PO Box 6025, Morgantown, WV 26506-6025.
E-mail: kip.holderness@mail.wvu.edu
c
Professor, Department of Accounting, College of Business & Economics, West Virginia University, PO Box 6025, Morgantown, WV 26506-6025. E-mail:
ade.neidermeyer@mail.wvu.edu
d
Professor, Department of Accounting, College of Business & Economics, West Virginia University, PO Box 6025, Morgantown, WV 26506-6025. E-mail:
presha.neidermeyer@mail.wvu.edu
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Journal of Financial Counseling and Planning, Volume 30, Number 1, 2019, 27-43 27
© 2019 Association for Financial Counseling and Planning Education®
http://dx.doi.org/10.1891/1052-3073.30.1.27
how minor changes in financial disclosures reduce cogni- one’s education. Financial stress, however, can cause stu-
tive load and impact the amount and types of loans a student dents to decrease their course load, leading to a greater risk
incurs. Our studysuggests that if colleges want to impact the of dropout and a longer time expended in higher educa-
magnitude of loans students take out, they should consider tion to obtain a degree (Britt, Canale, Ferratt, Stutz, & Tib-
altering financial disclosures. betS, 2015; Jones, 2005; Joo, Durband, & Grable, 2008).
Research has suggested that financial stressors are linked to
Background Information on Student Loan Debt academic performance (Grable & Joo, 2006; Joo et al., 2008;
The College Board (2015) reported a 5-year, 17% increase Joo, Grable, & Bagwell, 2003; Norvilitis et al., 2006; Perna,
in tuition and fees in public 4-year institutions for the year 2008), while extended time periods in institutions of higher
ending in 2014. It also reported a 21% increase for the learning come with increased costs that must be absorbed by
5-year period ending in 2010. Recent financial news reports students and their families to facilitate degree completion.
documented a high level of student loan indebtedness that
is unlikely to subside in the near future (Anonymous, 2013, Given the potential negative impact of debt on their future
2014). The Federal Reserve Bank of New York (2016) esti- alumni, many colleges are offering financial counseling and
mated the student loan debt to be $1.23 trillion, surpass- other services to students as a mechanism for increasing
ing both credit card ($882 billion) and auto loan debt ($370 retention and reducing the financial stress caused by student
billion). As college costs have increased, students have loan debt. In addition to the negative impacts for borrowers
acquired increasing amounts of indebtedness to finance their noted above, the American Student Assistance Life Delayed
university expenses. The average indebtedness of students Report (2015) included the inability to afford daily neces-
increased 6% from 2015 to 2016, easily outpacing inflation. sities; delaying car, home, and other major purchases; the
inability to save for retirement; delay in marriage or starting
In what has become a continuing series of “the most a family; and/or delay in starting a business. This requires
indebted class yet,” Picchi (2016) reported on CBS News increasing the financial knowledge of students in terms of
that graduates from the class of 2016 had an average of both money and debt management with the aim of enabling
$37,172 in undergraduate student loan debt, which repre- students to pay for their college educations in a manner
sented a rise from $35,000 in 2015 (Sparshott, 2015). The that does not damage their long-term financial well-being.
proportion of students taking out loans has also increased. We posit that one cost-effective way colleges can improve
Sparshott (2015) found that 71% of undergraduate students the financial decision-making processes of prospective stu-
will graduate with some amount of indebtedness, an increase dents is by examining how changes in the formatting of
of 7% during the past decade. Debt of this magnitude has financial-aid documents affects students’ preferences for
had an impact not only on students, but also on the econ- various sources of funding. We next discuss two potential
omy, encouraging legislation to reduce the indebtedness formatting changes that may influence students’ financial-
of students with various programs and incentives. Govern- aid decisions.
ment financial-aid programs have not kept pace with the
above-inflationary-rate hikes of higher education, requir- Hypotheses
ing students to determine how best to fund their educa- We examined whether small formatting changes on
tions by other means. Student financing options include financial-aid documents provide a cost-effective approach
self-financing (through savings or working while in col- for colleges to significantly affect students’ financial-aid
lege), family funding, or taking out loans (either private or decisions. Specifically, we examined whether the provi-
governmental) to cover the cost of educational and personal sion of a range of cost estimates, rather than the point esti-
expenditures while in school. mate that typically is provided by universities, decreased
students’ estimations of their educational costs. In addi-
The desire to retain students to degree completion has tion, we examined whether increasing the availability and
led universities and their administrations to enact various salience of interest rates decreased students’ cognitive load
retention initiatives. Staying in school and graduating on when reviewing financial-aid documents, allowing students
time is important for both progressing toward the goal of to make better decisions. Such a change should lead to a
obtaining a university degree and minimizing the cost of
Pdf_Folio:28 reduction in students’ appetite for high-cost private loans

28 Journal of Financial Counseling and Planning, Volume 30, Number 1, 2019

and encourage students to provide more of their support forms inherent in the process. Such a process can lead to
through employment. cognitive overload (Sweller, 1988), which occurs when an
individual’s cognitive-processing capacity is overwhelmed,
reducing one’s decision-making abilities. Specifically, cog-
Range Versus Point Estimate
nitive load refers to the burden placed on active memory
Universities estimate their cost of attendance based on the
(Sweller, 1988); the myriad of documents used by uni-
reported experiences of previous students. Living expenses
versities to provide financial-aid information may worsen
are highly variable depending on students’ lifestyle choices.
this cognitive burden. Loewenstein, Sunstein, and Golman
However, universities typically provide students with a
(2014) discussed how simpler forms (i.e., more concise)
point estimate (i.e., a single number) during the financial-
could allow for effective decision-making. Theoretically,
aid process. Tversky and Kahneman (1974) demonstrated
the simplification of the financial-aid documentation should
that individuals have a natural inclination to anchor on
improve novice decision-making abilities by reducing cog-
provided information, which may inhibit their ability to
nitive overload. One of the simplifications that could be
consider other, more appropriate values. These anchoring
easily implemented to the financial-aid forms would be
behaviors have been noted in a variety of contexts, including
the inclusion of interest rates to the loan decision form
negotiation (Diaz, Zhao, & Black, 1999; Galinsky & Muss-
rather than requiring students to find this information on
weiler, 2001), general knowledge (Blankenship, Wegener,
a separate form. Theory suggests that if students’ efforts
Petty, Detweiler-Bedell, & Macy, 2008; Epley & Gilovich,
to search for interest rates are minimized, their cognitive
2001, 2005; McElroy & Dowd, 2007; Wegener, Petty,
load will be reduced and their decision-making ability will
Detweiler-Bedell, & Jarvis, 2001), probability judgments
improve. For example, Rose and Wolfe (2000) demonstrated
(Chapman & Johnson, 2002; Plous, 1989; Tversky & Kah-
that changing the location of information to improve infor-
neman, 1974), valuation or purchasing decisions (Ariely,
mation access effectively reduced cognitive load. Kozup
Loewenstein, & Prelec, 2003; Mussweiler et al., 2000;
and Hogarth (2008) suggested that in addition to providing
Wansink, Kent, & Hoch, 1998), and forecasting (Critcher &
the appropriate level of information, the information must
Gilovich, 2008).
be displayed in an appropriate manner. Based on the lit-
erature that investigated the nutritional displays on food,
We expected that providing students with a range of esti-
Russo, Staelin, Nolan, Russell, and Metcalf (1986) sug-
mates (as opposed to a single point estimate) would help
gested that effort-reducing displays are effective for having
them consider the possibility that their cost of attendance
individuals select the optimal choice in food products. In
would differ from that of the average student, effectively
regards to the selection of payday loans, individuals made
reducing anchor effects by intimating that lifestyle choices
better decisions when there was a more obvious display
influence the cost of their educations (Whyte & Sebenius,
of the costs, fees, and interest rates (Bertrand & Morse,
1997). We believed that students who received a range of
2011). Furthermore, Stango and Zinmer (2011) found that
cost estimates would have lower estimated attendance costs
most people underestimated annual percentage interest rates
than those who received a point cost estimate. This would
when attempting to intuitively calculate the amount rather
result from the students’ realization that they could choose
than having the actual amount displayed in lending doc-
to limit their variable expenditures. We formally state our
uments. It follows, then, that adding interest rates to the
first hypothesis as follows:
loan decision form will also provide the benefit of increas-
ing the salience of how the interest rates of various types
H1: Students who receive a range estimate of costs will
of financial aid differ, which emphasizes the true cost of
anticipate a lower cost of attendance than students who
student debt.
receive a point estimate of costs.

We expected that including the interest rates on financial-

Increasing Availability and Salience of Interest Rates aid acceptance forms would decrease cognitive load and
Students are bombarded with copious amounts of informa- enable students to better understand the true cost of financial
tion during the financial-aid process. It is easy to understand aid. We also anticipated that students with access to interest
how they might feel inundated by the amount of data and
Pdf_Folio:29
rates on financial-aid forms would elect lower-cost options

Journal of Financial Counseling and Planning, Volume 30, Number 1, 2019 29

to fund educational expenses. We formally hypothesized the other forms of debt. At the same time, women may have an
following: increased desire to complete their college education in order
to earn increased wages throughout their lifetimes, a factor
H2: Including interest rates on financial-aid acceptance that is likely to be considerably more significant given the
forms will result in students planning to fund less of their well-documented U.S. gender pay gap (American Associa-
education through private loans. tion of University Women, 2016).

H3: Including interest rates on financial-aid acceptance Other Factors

forms will result in students planning to fund more of their
Brown, Grigsby, van der Klaauw, Wen, and Zafar (2016)
education through student employment.
suggested that young Americans rely heavily on debt and
present clear financial literacy inadequacies. Within aca-
In addition to the formatting changes discussed earlier, pre-
demic institutions, research suggests that students’ levels of
vious research suggests that other factors (i.e., gender and
financial knowledge vary, and that lower levels of financial
financial knowledge) may influence student indebtedness.
knowledge can cause suboptimal decisions when choosing
Though we do not specifically hypothesize how these fac-
how to finance college expenses (Norvilitis et al., 2006).
tors will influence the results of this study, we briefly sum-
Brown et al. (2016) suggested that mathematical and finan-
marize why it is important to consider them.
cial educations would decrease the general (i.e., nonstu-
dent) level of indebtedness and would improve repayment
Gender Differences behavior. Alternative research studies have suggested that
The findings about whether or not gender impacts the finan- financial education (in secondary schools) does not impact
cial decision-making of students are mixed. Norvilitis et al. financial acumen (Bernheim, Garrett, & Maki, 2001; Cole,
(2006) found no significant gender effects regarding stu- Paulson, & Shastry, 2016). Research studies have investi-
dent credit card indebtedness. Archuleta, Dale, and Spann gated how personality factors and financial knowledge com-
(2013), however, suggested that gender was associated with bine to influence a student’s choice on incurring credit card
financial anxiety related to overall student indebtedness debt; however, the results are mixed. Norvilitis, Szabllicki,
from student loans and credit cards, with females report- and Wilson (2003) indicated that, while the vast majority
ing higher overall levels of financial anxiety than their male of college students possessed at least one credit card, those
counterparts. Earlier studies reported that females had less who requested and received credit cards from on-campus
financial knowledge than their male counterparts (Hayhoe, sources incurred more debt than those who obtained their
Leach, Allen, & Edwards, 2005; Jones, 2005; Lyons, 2004). credit cards from other providers. Kim, Chatterjee, and Kim
Hira and Mugenda (2000) found that women were less satis- (2012) found that communicating with parents reduced the
fied than men with their financial conditions. Goldsmith and likelihood that a student would borrow. In addition, parental
Goldsmith (2006) suggested that, while there were gender resources also reduced the likelihood that a student would
differences regarding financial knowledge as far as women borrow (Britt et al., 2015). By definition, first generation
knowing less about financial matters than their male coun- college students have less experience with the administra-
terparts, instruction in this area helped to close the knowl- tive process of applying for college and the importance of
edge gap between the genders. Fry (2014) found that the utilizing familial resources during this time. Accordingly,
percentage of women graduating college with some form of we seek to determine whether or not first generation status
indebtedness was 71%, compared to 67% for their male col- will impact the manner by which a student finances their
leagues. The National Debt Relief (2015) found that 63% of college education. Likewise, we seek to determine whether
females between the ages of 18 and 24 carried a credit card or not a parent’s educational level impacts the decision con-
balance, compared to that of their male colleagues, which struct due to the fact that more experience with financial-aid
was less than 33%. Similar findings were indicated by Arm- applications and the ramifications of choices may impact a
strong and Craven (1993) and Lundam et al. (2012). These student’s decision making. In addition, parental input is also
mixed findings indicate that women are more likely to take frequently an important factor in a child’s financial decision
out loans rather than work full time to finance their col- making (Cude et al., 2006; Norvilitis & MacLean, 2010;
lege education, as is demonstrated by their propensity to use
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Shim, Xiao, Barber, & Lyons, 2009).

30 Journal of Financial Counseling and Planning, Volume 30, Number 1, 2019

Method explained the differences between various types of finan-
Participants cial aid and disclosed the interest rates associated with each
To test our hypotheses, we conducted an experiment type. All participants were allowed to refer to the brochure
employing undergraduate business students attending a throughout the entire experiment. In order to ensure exter-
large public university. The 353 participants, enrolled in nal validity, the design of the brochure was based on actual
introductory managerial and cost accounting classes, were financial-aid information provided by a university to incom-
offered one point of extra credit to take part in the exper- ing students.
iment. Participants were e-mailed a link to the survey site
Qualtrics, where they could complete the survey. A total of In the second part of the experiment, subjects were provided
271 participants began the survey, and 204 completed the with information regarding the cost of attending the univer-
survey, leading to a response rate of 57.8%. To account for sity (including tuition, books and supplies, transportation
nonresponse bias, a comparison of 30 early respondents and costs, and room and board). Again, for purposes of exter-
30 late respondents was conducted. The results indicate no nal validity, we interviewed several financial-aid officers to
significant differences. gather information about the cost of attending a university.
Half of the subjects were provided a point estimate of the
additional cost of attendance ($11,800), while the other half
Design were provided with a range estimate of the additional cost of
Data was gathered through an experiment that utilized a attendance ($7,300–$16,300). The additional cost of atten-
2 × 2 between-subjects random design (Figure 1). We dance included costs for room and board, books and sup-
manipulated two variables: (a) the presentation of the cost plies, transportation, and personal expenses not included in
of attendance at the university (i.e., whether the cost esti- university tuition and fees. All subjects were asked to esti-
mate was a point or a range estimate) and (b) the promi- mate how much it would cost for them to complete 1 year
nence of the display of interest rates during the financial-aid of school at the university.
process (i.e., whether the loan rates were included in both
the financial-aid brochure and the financial-aid acceptance In the third part of the experiment, participants were pro-
form, or only in the financial-aid brochure). vided with a mock financial-aid award. This award con-
sisted of varying amounts of financial aid that is consistent
During the experiment, participants were asked to assume with the federal limits in each of the prospective loan cat-
the role of an incoming freshman at a university. The exper- egories. A second manipulation was provided at this level
iment consisted of four parts. First, participants were asked that either explicitly showed the rate associated with each
to read a brochure that detailed the various forms of finan- loan category or did not show the rate (although all sub-
cial aid available at the university. The brochure (Figure 2) jects had access to the rates in the provided brochure). The

Figure 1. 2 × 2 Experimental design matrix.

Conditions Percentage Rate No Percentage Rate

Additional cost estimates are Additional cost estimates are provided as a

Point Cost

provided as a single estimate for single estimate for each category. On the
Estimate

each category. On the loan loan acceptance page, a loan percentage

acceptance page, a loan rate is not shown. Respondents still have
percentage rate is shown. access to the loan rate.

Additional cost estimates are Additional cost estimates are provided as a

Range Cost

provided as a range of estimates range of estimates for each category. On

Estimate

for each category. On the loan the loan acceptance page, a loan percentage
acceptance page, a loan rate is not shown. Respondents still have
percentage rate is shown. access to the loan rate.

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Journal of Financial Counseling and Planning, Volume 30, Number 1, 2019 31

Figure 2. Financial-aid brochure.

Note. EFC = expected family contribution.

total amount of eligible loans was, however, insufficient ESTIMATE = 0). In the point condition, the additional
in meeting the student’s estimated cost of attendance for costs of attendance showed a single dollar value for books
the upcoming year. Participants were then asked to deter- and supplies, room and board, transportation, and personal
mine which grants and loans they would accept and esti- expenses. Subjects were told that the amounts provided were
mate what amount of their contributions from work would averages based on student estimates. In the range condition,
fund the cost of their attendance. In the final part of the the additional costs for the same items showed high and low
experiment, participants were asked a series of questions to estimates that were 20% above and below the point estimate,
gather demographic information. Screenshots of the exper- respectively. Subjects were told that the ranges were based
iment are available from authors upon requests. on student estimates.

Interest Rate Visibility. The second independent variable

Independent Variables (INTEREST RATE) related to the prominence or visibility
Cost Estimate Presentation. The first independent vari- of interest rate information. When INTEREST RATE = 1,
able (POINT ESTIMATE) relates to whether a participant’s interest rate information was provided on the financial-aid
cost-of-attendance estimate was displayed as a point esti- acceptance form in addition to the student-aid brochure pro-
mate (POINT ESTIMATE = 1) or a range estimate (POINT vided in the experiment (see Figure 1). When INTEREST
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32 Journal of Financial Counseling and Planning, Volume 30, Number 1, 2019

RATE = 0, interest rate information was provided in the fund their entire cost estimate (through some combination
student-aid brochure only. of grants, loans, and employment).

Control Variables
Dependent Variables
Several control variables were measured to account for the
Additional Cost Estimate. The first research question outside factors that may play a role in the financial aid
examines how the university’s presentation of the cost decision-making process. To test for potential significant
of attendance (i.e., point vs. range) affects subjects’ covariates, an initial MANCOVA analysis was performed
cost-of-attendance estimates. In the point condition, partic- wherein POINT ESTIMATE and PERCENT were included
ipants were provided with the estimated cost of room and as independent variables, and ADDITIONAL FUNDS, PRI-
board, transportation, books, fees, and personal expenses. VATE LOAN, ESTIMATED WORK, GRANT, SUBSIZIDED
Consistent with the actual financial-aid brochure and the LOANS, and UNSUBSIDIZED LOANS were included as
presentation of the cost-of-attendance information, the point dependent variables. The following were included as
condition participants were told that the information pro- covariates: male or female (GENDER), first member of
vided was based on prior student surveys. The range condi- the subject’s family to attend college (FIRST COLLEGE
tion provided the same items but instead of a single dollar ATTENDEE), mother’s highest level of education attained
point estimate, a range of dollar estimates from 20% below (MOTHER’S EDUCATION), living abroad for more than
to 20% above the single-point estimate was shown. Partic- 1 year (INTERNATIONAL EXPERIENCE), year in school
ipants then chose an amount of additional funds that they (YEAR), whether subject’s parents experienced a financial
would need in order to attend the university (ADDITIONAL crisis (FINANCIAL CRISIS EXPERIENCE), father’s high-
FUNDS REQUIRED). est level of education attained (FATHER’S EDUCATION),
amount of news watched (NEWS WATCHED), and how per-
Private Loans Estimate and Work Estimate. After mak- sonal financial knowledge is obtained (PERSONAL FINAN-
ing a decision regarding their desired funding level, the CIAL KNOWLEDGE). Significant covariates (those with
participants were asked to select how to fund both their a p-value < .10 for any of the dependent variables) were
college tuition and their additional cost estimates. Their included in all subsequent analyses, which were GENDER,
funding options included grants (GRANT), subsidized fed- WORK IN HIGH SCHOOL, INTERNATIONAL EXPERI-
eral loans (SUBSIDIZED LOANS), unsubsidized federal ENCE, FIRST COLLEGE ATTENDEE, and MOTHER’S
loans (UNSUBSIDIZED LOANS), private loans (PRIVATE EDUCATION. Insignificant covariates were excluded from
LOAN), and an estimated contribution from working (ESTI- subsequent analyses.
MATED WORK). We expected that most subjects would
take advantage of the low-cost funding options, such as
scholarships and government grants. Thus, we focused Results
on the costs of college that were funded through private Descriptive Statistics
loans (PRIVATE LOAN) and work estimates (ESTIMATED Table 1 presents descriptive statistics from the survey.
WORK) as our dependent variables. However, H2 and H3 Among the participants in the study, 61.30% were male,
predicted that increasing the availability and salience of which is a higher percentage than the population at the
interest rates (by including the rates on the financial-aid university (52% male and 48% female). Also among the
form instead of only the financial-aid brochure) will affect participants, 53.4% were not the first in their family to
the amount of high-rate private loans subjects accept, as well attend college. Participants indicated their mother’s high-
as the funding the subjects intend to obtain through employ- est attained education level and the resulting percentages
ment. In addition, PRIVATE LOAN and ESTIMATED were as follows: bachelor’s degree (38.2%), high school
WORK are also dependent variables. Across all cases, par- diploma (27.9%), associate degree (17.2%), master’s degree
ticipants retained access to the financial-aid brochure, which (15.2%), and doctoral degree (1.5%). Participants indicated
contained the rate information. We programmed our survey their father’s highest attained education level and the results
so that students were required to indicate how they would were as follows: high school diploma (34.8%), bachelor’s
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Journal of Financial Counseling and Planning, Volume 30, Number 1, 2019 33

degree (33.8%), master’s degree (12.3%), associate degree and low range points, which, by design, was equal to the
(11.8%), and doctoral degree (7.4%). A majority, or 66.7%, point estimate in our experiment. ADDITIONAL FUNDS
of the participants had high school work experience, while REQUIRED TO ATTEND UNIVERSITY is included as a
92.6% had not spent more than 1 year abroad. Of the par- covariate in subsequent tests of hypotheses.
ticipants, 57.9% were freshman- or sophomore-level stu-
dents. Only 13.2% of participants indicated their parents had
H2: Rate and Private Loans
experienced a financial crisis. Nearly half (49.5%) of the
H2 states that displaying a rate next to the loan choices will
participants consumed an hour or less of financial news a
cause the subject to request a lesser amount through pri-
week, and 42.6% of participants had gained personal finan-
vate loans. To test H2, the PRIVATE LOAN in the rate and
cial knowledge through “personal experience.”
no-rate conditions were compared. Results of this analysis
are shown in Panel B of Table 3. ADDITIONAL FUNDS
Pairwise Correlations REQUIRED showed significance (F = 44.22; p < .001) as
Table 2 describes the correlations between the main did FIRST COLLEGE ATTENDEE (F = 4.45; p = .04). As
sources of college funding and the variables are as expected, there was a positive correlation between the addi-
follows: ADDITIONAL FUNDS REQUIRED, PELL, ESTI- tional estimate students think they need and the amount of
MATED UNSUBSIDIZED LOANS, ESTIMATED SUB- private loans they expect to borrow. No other control vari-
SIDIZED LOANS, PRIVATE LOAN, and ESTIMATED ables in the model were significant. The mean amount of
WORK. As expected, ADDITIONAL FUNDS is signifi- PRIVATE LOAN was significantly smaller in the rate con-
cantly correlated with PRIVATE LOAN, indicating that as dition (F = 3.88; p = .05). This indicates that when the rate
the additional estimate increases, the amount taken out for is included on the financial-aid acceptance form during the
private loans also increases. PRIVATE LOAN and ESTI- acceptance phase of the tuition process, respondents choose
MATED WORK showed a negative correlation. This neg- to take less private loans (Mean [SD] = $17,481 [$9,779]
ative correlation indicates that funds provided through with the rate present versus $19,844 [$8,573] with no rate).
private loans and student employment are largely substi- According to these findings, H2 is supported.
tutes. ESTIMATED WORK is also negatively associated
with PELL, ESTIMATED UNSUBSIDIZED LOAN, and
H3: Rate and Work Estimate
ESTIMATED SUBSIDIZED LOAN, indicating that partic-
H3 states that showing a rate next to the loan choices
ipants who fund their educations through working will
will require subjects to work more to fund their
require fewer grants and loans.
education. We tested H3 with an ANCOVA analysis that
compared the ESTIMATED WORK of students in the rate
H1: Point Versus Range and no-rate conditions. Results of this analysis are shown in
H1 predicted that the range-estimate condition will result Panel C of Table 3. The control variable FIRST COLLEGE
in lower additional cost estimates than the point-estimate ATTENDEE was significant (F = 4.28; p = .04) while
condition. We tested H1 with an ANCOVA analysis that MOTHER’S EDUCATION was marginally significant
compared the ADDITIONAL FUNDS REQUIRED of stu- (F = 3.23; p = .07). Our results suggest that an individual
dents in the point and range conditions. Results of this who is the first person in his or her immediate family to
analysis are shown in Panel A of Table 3. None of the attend college is more likely to take out loans, rather than
control variables included in the model are significant. For work, to finance higher education. Similarly, an individual
the point condition, the mean (SD) additional-cost estimate is more likely to rely on loans to finance education if his or
was $9,499 ($4,455). For the range condition, the mean (SD) her mother’s education level is lower. Familial experience
amount estimated was $10,077 ($4,547). Statistically, there in financing higher education experience appears to affect
is no difference in loan decisions for respondents exposed students’ choices related to funding their own educations.
to a range of cost estimates versus a single median cost No other control variables in the model are significant. The
(F = 0.91; p = .34). Thus, H1 is not supported. One pos- mean amount of ESTIMATED WORK was significantly
sible explanation for our finding is that the subjects in the larger for the rate condition (M = $7,727; SD = $9,822)
range condition produced the average (mean) of the high
Pdf_Folio:34 than for the no-rate condition (M = $5,346; SD = $6,817;

34 Journal of Financial Counseling and Planning, Volume 30, Number 1, 2019

TABLE 1. Participant Demographic Information
Variable Category Count Percentage
GENDER Male 125 61.3
Female 79 38.7
FIRST COLLEGE ATTENDEE Yes 95 46.6
No 109 53.4
MOTHER’S EDUCATION High school diploma 57 27.9
Associate degree 35 17.2
Bachelor’s degree 78 38.2
Master’s degree 31 15.2
Doctoral degree 3 1.5
WORK IN HIGH SCHOOL Yes 136 66.7
No 68 33.3
INTERNATIONAL EXPERIENCE Yes 15 7.4
No 189 92.6
YEAR Freshman 24 11.8
Sophomore 94 46.1
Junior 56 27.5
Senior 30 14.7
Graduate 0 0.0
FINANCIAL CRISIS EXPERIENCE Yes 27 13.2
No 177 86.8
FATHER’S EDUCATION High school diploma 71 34.8
Associate degree 24 11.8
Bachelor’s degree 69 33.8
Master’s degree 25 12.3
Doctoral degree 15 7.4
WATCH NEWS 0–1 hours/week 101 49.5
1–3 hours/week 76 37.3
3–5 hours/week 22 10.8
5–10 hours/week 3 1.5
10–15 hours/week 1 0.5
15+ hours/week 1 0.5
PERSONAL FINANCIAL KNOWLEDGE Through work 18 8.8
Through school 55 27.0
A financial planner 6 2.9
Personal experience 87 42.6
Not knowledgeable 38 18.6
Notes. FATHER’S EDUCATION = father’s highest education level; FINANCIAL CRISIS EXPERIENCE = asked if the sub-
ject’s parents had ever experienced a financial crisis; FIRST COLLEGE ATTENDEE = asked whether the subject was the first
in the immediate family to enroll in college; INTERNATIONAL = asked if the subject has ever lived abroad for more than
one year; MOTHER’S EDUCATION = mother’s highest education level; PERSONAL FINANCIAL KNOWLEDGE = asked
how the subject has acquired financial knowledge; WATCH NEWS = amount of news watched per week (hours); WORK IN
HIGH SCHOOL = asked if the subject worked in high school.
Pdf_Folio:35

Journal of Financial Counseling and Planning, Volume 30, Number 1, 2019 35

TABLE 2. Correlation Matrix
Correlations M SD ADDITIONAL PELL ESTIMATED ESTIMATED PRIVATE ESTIMATED
FUNDS UNSUBSI- SUBSI- LOAN WORK
REQUIRED DIZED DIZED
LOANS LOANS
ADDITIONAL 9796.60 4500.1 1
FUNDS
REQUIRED
PELL 3889.39 2247.33 0.114 1
ESTIMATED 1396.52 948.98 0.052 0.316** 1
UNSUBSI-
DIZED
LOANS
ESTIMATED 2411.64 1473.75 0.175* 0.475** 0.639** 1
SUBSI-
DIZED
LOANS
PRIVATE 18639.55 9260.96 0.431** -0.128 -0.036 -0.017 1
LOAN
ESTIMATED 6559.50 8546.47 -0.006 -0.182** -0.238** -0.257** -0.816** 1
WORK
Notes. ADDITIONAL FUNDS = measures the additional estimated cost of attendance; ESTIMATED SUBSIDIZED LOANS =
measures the subsidized estimated cost of attendance; ESTIMATED UNSUBSIDIZED LOANS = measures the unsubsidized
estimated cost of attendance; ESTIMATED WORK = measures the estimated contribution through working; PELL = measures
the amount of the Pell Grant for attendance; PRIVATE LOAN = measures the amount of private loans taken for attendance.
Demographic variable definitions are located at the bottom of Table 1.
*
Correlation is significant at the 0.05 level (2-tailed).
**
Correlation is significant at the 0.01 level (2-tailed).

F = 4.356; p = 0.04). This difference indicates that, when PRIVATE LOAN. For females, the inclusion of the rate had
the rate is placed next to various loan options on the an insignificant effect ($18,305 for those who received the
financial-aid acceptance form, students estimate they need rate and $18,894 for those who did not; p = .23). The
to work more to contribute to the cost of attendance, rel- GENDER * INTEREST RATE interaction also significantly
ative to when the rate is not placed next to loan options. affected the amount of money that subjects expected to earn
Thus, H3 is supported. by working through college. By adding the interaction term
to the analysis in Panel C of Table 3, we found that the model
(F = 2.66; p = .01; adjusted R2 = 0.054) and the interac-
Supplemental Analysis: GENDER * INTEREST RATE tion term were significant (F = 4.77; p = .03). When males
Interaction were provided with the private loan rates on their financial-
We conducted supplemental analyses to determine the addi- aid acceptance forms, the amount of money they expected to
tional nonhypothesized effects. We found that the interac- earn through working increased from $4,197 to $8,745. For
tion between GENDER and INTEREST RATE significantly females, the mean amount of ESTIMATED WORK between
affected both PRIVATE LOAN and ESTIMATED WORK. rate and no-rate conditions was relatively consistent: $6,861
After adding the interaction term to the analysis shown in and $6,105, respectively (p = .13). This information is rep-
Table 3, Panel B produced a significant model (F = 2.30; resented graphically in Figures 3 and 4.
p = .03; adjusted R2 = 0.043; results untabulated). The GEN-
DER * INTEREST RATE interaction is moderately signifi- This finding is consistent with extant literature, which indi-
cant (F = 3.40; p = .07). For males, including the private cates that women take out more loans than men. Fry (2014)
loan rate on the financial-aid acceptance form decreased
Pdf_Folio:36
suggested that there is a gender difference in graduation

36 Journal of Financial Counseling and Planning, Volume 30, Number 1, 2019

TABLE 3. ANCOVA Analyses
Factor Adj-R2 SS df MS F p-value
Panel A: ANCOVA Results for ADD_EST
GENDER 1,961,923.11 1 1,961,923.11 0.10 .76
WORK IN HIGH SCHOOL 10,139,706.94 1 10,139,706.94 0.50 .48
INTERNATIONAL 45,833,319.96 1 45,833,319.96 2.26 .13
EXPERIENCE
FIRST COLLEGE ATTENDEE 22,041,500.03 1 22,041,500.03 1.09 .30
MOTHER’S EDUCATION 704,014.18 1 704,014.18 0.04 .85
POINT ESTIMATE 1,8461,635.98 1 18,461,635.98 0.91 .34
Model Summary 0.00 122,581,358.63 6 20,430,226.44 1.01 .42
Panel B: ANCOVA Results for PRIVATE LOAN
ADDITIONAL FUNDS 3,013,501,955.59 1 3,013,501,955.59 44.22 < .00
REQUIRED
GENDER 470,334.05 1 470,334.05 0.01 .93
WORK IN HIGH SCHOOL 90,117,578.58 1 90,117,578.58 1.32 .25
INTERNATIONAL 39,721,774.30 1 39,721,774.30 0.58 .45
EXPERIENCE
FIRST COLLEGE ATTENDEE 303,334,400.79 1 303,334,400.79 4.45 .04
MOTHER’S EDUCATION 163,024,692.75 1 163,024,692.75 2.39 .12
INTEREST RATE 264,117,245.22 1 264,117,245.22 3.88 .05
Model Summary 0.21 4,052,879,754.89 7 578,982,822.13 8.50 < .00
Panel C: ANCOVA Results for WORK_EST
ADDITIONAL FUNDS 2,537,408.30 1 2,537,408.30 0.04 .85
REQUIRED
GENDER 49,033.31 1 49,033.31 0.00 .98
WORK IN HIGH SCHOOL 134,080,478.95 1 134,080,478.95 1.90 .17
INTERNATIONAL 408,525.88 1 408,525.88 0.01 .94
EXPERIENCE
FIRST COLLEGE ATTENDEE 302,745,233.90 1 302,745,233.90 4.28 .04
MOTHER’S EDUCATION 228,314,514.42 1 228,314,514.42 3.23 .07
INTEREST RATE 308,219,853.70 1 308,219,853.69 4.36 .04
Model Summary 0.031 960,069,720.58 7 137,152,817.23 1.94 .07
Note. ADDITIONAL FUNDS = measures the additional estimated cost of attendance; ESTIMATED WORK = measures the
estimated contribution through working; INTEREST RATE = coded as 0 for no rate present during the loan selection and 1 with
the rate present; POINT ESTIMATE = coded as 0 for the range condition and 1 for the point condition for the additional cost of
attendance; PRIVATE LOAN = measures the amount of private loans taken for attendance. Demographic variable definitions
are located at the bottom of Table 1.

Pdf_Folio:37

Journal of Financial Counseling and Planning, Volume 30, Number 1, 2019 37

Figure 3. The effect of rate and gender on indebtedness is the gender inequity of job prospects for col-
funding source. lege dropouts, which requires women to acquire a college
degree to earn a good living. Therefore, the completion of
$28,000 the degree is mandated even if that requires taking more
$24,000 loans.
$4,197
$6,105 $6,861
$8,746
$20,000
Demographic factors may also lead to a divergence in the
$16,000 gendered indebtedness rates. Research has shown that stu-
dents from less robust economic circumstances take out
$12,000
$20,941 more loans to facilitate their college educations and that
$18,894 $18,306
$ 8,000 $16,643
the percentage of women from the lower socioeconomic
$ 4,000 strata has been increasing (Ewert, 2012). Our study does
not show a gender difference in familial economic cir-
$-
Males % Females % Males No % Females No % cumstances; therefore, based on past research, the rea-
Private Loan Work son women borrow more is likely due to a concern about
the increased potential for failure associated with study-
ing less and working more. This may lead to an increased
Figure 4. The interaction effect of rate and risk of leaving school and therefore greater potential for a
gender on spending (graph). decrease in lifetime earnings. The U.S. Bureau of Labor
Statistics (2013) suggested that, within the United States,
women’s earnings as a percentage of men’s are 82% in
the United States as a whole and there are state differ-
ences as well. In the state where we conducted our study,
women’s earnings fell 8% below the national average, mak-
ing lifetime earnings an even more critical issue for women,
who likely see education as one way for overcoming this
difference.

Discussion
Due to the soaring costs of higher education, administra-
tors and educators within educational institutions charged
with assisting students with these issues should be cognizant
of the factors influencing students’ decisions to fund their
educations. These decisions have a major impact on student
retention, student well-being, and the future of the student’s
personal financial plan, and thus should be of interest to
financial counselors, educators, financial-aid officers, and
others. Furthermore, the magnitude of student loan indebt-
edness will impact students’ abilities to afford other prod-
ucts later in their working careers and should be of interest to
rates favoring women in college and that women have taken those setting policies in the legislation. Overall, we find that
out more loans to facilitate their educational costs over the our cost-estimate presentations (i.e., point vs. range) have
course of the last 20 years. In 2011, 71% of women grad- no bearing on the students’ estimates of the cost of college
uated with some form of indebtedness compared to 67% attendance; however, range estimates may be more appro-
of their male colleagues (Fry, 2014). Dwyer, Hodson, and priate as they allow for some level of flexibility in the per-
McCloud (2013) stated that the reason for this increased
Pdf_Folio:38 sonal expenses incurred while in college.

38 Journal of Financial Counseling and Planning, Volume 30, Number 1, 2019

Our results demonstrate that, when college aid forms school students and college students are impacted in the
emphasize the interest rates of various financial-aid options, same way by changes to the financial-aid form. Sources
students are more cautious about taking on costly loans and and extent of financial knowledge might be tested in
thus, show a greater inclination to work during college. coordination with decision making to determine whether
These results align with prior theories regarding cognitive these factors are important in selection of debt versus
load (Rose, 2002; Rose & Wolfe, 2000). Placing the inter- nondebt financing alternatives. Future researchers might
est rate on the loan acceptance form simplifies the decision also consider investigating student populations at a variety
to accept aid and reduces cognitive load, which leads to bet- of institutions. While the current university has a diverse
ter decision-making. Thus, our results suggest that the U.S. student population, future research might consider inves-
Department of Education should consider adding interest tigating decision-making either at geographically diverse
rates to the Financial-Aid Shopping Sheet. We also find in institutions or at institutions with differentiated Carnegie
our supplemental analysis that this result is driven by male classifications to determine whether students’ financial-aid
students, who plan to borrow less and estimate a higher con- decisions are altered based on either of these factors.
tribution through work than their female counterparts. Given
the stress associated with working while in school, it may be Our research study examines two of many techniques to
that women are selecting a mechanism to ensure short-term alter the financial-aid acceptance forms. Multiple other
success in the classroom, since in this circumstance they experiments could be conducted to show how any desired
will not be required to manage as rigorous a work sched- change in the form might change students’ behavior when
ule during their educations as their male colleagues. Men financing their educations. The form could be altered in
by contrast may be accepting short-term stress as the cost terms of the type of information presented first and how
of lessened long-term stress in the form of lower loan pay- the material is presented (electronically, on paper, elec-
back amounts later in life. Given this difference, stakehold- tronic presentations with links to alternate forms and calcu-
ers should use different educational techniques depending lations, etc.). Within these permeations, there may be more
upon the desired outcomes of work- versus loan-financed effective ways to influence students’ financial-aid decisions
education when working with students. Overall, the study that could be examined further by future studies. Gender
suggests that small changes in the student financial-aid pro- should be considered in all of the aforementioned areas to
cess may lead to substantial cost savings for students. determine whether gender is a factor when providing
financial-aid documentation. These areas of study constitute
Our article has several limitations. Ideally, the subjects a rich base of potential research questions that could pro-
would have been high school students, as they represent vide beneficial insights to those in higher education charged
the population applying for financial aid with no individual with assisting students on making the best decisions when
experience. The actual subjects were college students who financing their education both in the short and the long term.
had applied for and accepted financial aid within the past
few years. In our inquiry of these college students, we were
not able to ask them to complete this survey using familial Implications for Financial Education, Counseling,
input that they might have otherwise sought. In our exper- and Planning
iment, it is unclear whether college experience impacted Our study has implications for policy makers, students,
the subjects’ decisions and how familial inquiry might have and other individuals who provide financial assistance to
impacted their responses. A second limitation is that the students. The standard format for financial-aid informa-
study investigated students’ decisions on financial aid at tion proposed by the Department of Education and the
only one institution of higher learning. Finally, the current Obama Administration, known as the Financial-Aid Shop-
study investigated financial-aid decision-making by manip- ping Sheet, assists students in determining how they will
ulating two variables on the financial-aid form. pay for college by listing several available funding sources
(U.S. Department of Education, 2015). The study provides
A future research study might consider using high school evidence that the long-term cost of education would sig-
students to determine whether their sample differed from nificantly decrease if the Financial-Aid Shopping Sheet
that of college students. This would illustrate whether high
Pdf_Folio:39
included interest rates next to each potential funding source.

Journal of Financial Counseling and Planning, Volume 30, Number 1, 2019 39

Even though interest rates are readily available on other Bertrand, M., & Morse, A. (2011). Information disclosure,
forms, making the rates more noticeable would likely cognitive biases, and payday borrowing. The Jour-
decrease cognitive load, improving students’ ability to make nal of Finance, 66(6), 1865–1893. doi:10.1111/j.1540-
optimal decisions. We believe policy makers should take 6261.2011.01698.x
note of this finding and consider the ease with which this Blankenship, K. L., Wegener, D. T., Petty, R. E., Detweiler-
simple change could be implemented. Perhaps more impor- Bedell, B., & Macy, C. L. (2008). Elaboration and
tantly, the results suggest that the format of the financial- consequences of anchored estimates: An attitudi-
aid forms plays an essential role in encouraging students nal perspective on numerical anchoring. Journal of
to pay attention to interest rates rather than simply the dol- Experimental Social Psychology, 44(6), 1465–1476.
lar amounts of various funding sources. This may reduce doi:10.1016/j.jesp.2008.07.005
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Counselors and financial educators should take particular R. (2015). Financial stress and financial counsel-
care in ensuring students they advise note the interest rates ing: Helping college students. Journal of Financial
of the loans they are evaluating in their endeavor to finance Counseling and Planning, 26(2), 172–186.
their college education. doi:10.1891/1052-3073.26.2.172
Brown, M., Grigsby, J., van der Klaauw, W., Wen,
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