Factors Contributing to the Financial Self-Efficacy of Student Loan Borrowers

Abstract

Financial self-efficacy is associated with positive financial behaviors. This study investigated factors associated with financial self-efficacy among student loan borrowers based on original data collected through an online national survey of student loan borrowers between age 25 and 75. Results revealed that perceived student loan literacy prior to accruing higher education debt was significantly associated with current financial self-efficacy, while general financial literacy during repayment did not appear to be correlated with financial self-efficacy. This study draws on social cognitive theory to suggest that student loan literacy prior to accruing debt may act as a mastery experience, improving financial self-efficacy when the repayment period arrives. Given the increasing prevalence of student loans across all generations, this study underscores the need for early education and mentoring from financial professionals about student loan borrowing.

Financial self‐efficacy of consumers: A review and research agenda

“…Another most critical factor determining FSE is loan literacy. A study conducted by Brady et al (2021) found that student borrowers who demonstrated a higher level of loan literacy at the time of loan accrual exhibited a significant positive relationship with their current level of FSE.…”

“…Thus, self‐efficacy has been recognized as the foundational link between consumers' behavioral intentions and their actions afterward (Steinert et al, 2020). Previous scholarly investigations have employed this theoretical framework to investigate FSE such as Brady et al (2021) studied student loan literacy; Asebedo and Seay (2018), explored savings behavior; Asebedo et al (2022) investigated spending behavior; and Zia‐ur‐Rehman et al (2021) analyzed FWB.…”

“…This section discusses the methodology and several analytical techniques utilized in 64 empirical investigations succinctly outlined in (Brooks & Williams, 2022;Furrebøe et al, 2023;Grimes et al, 2022;Noor et al, 2020;Reyers, 2019) and Ordinary Least Squares regression (Asebedo & Seay, 2018;Brady et al, 2021;Montford & Goldsmith, 2016;Salas-Velasco, 2022) followed by structural equation modeling (Asebedo et al, 2022;Bhatia et al, 2021;Fan, 2023;Hentzen et al, 2022;Kim, Falconier, & Conway, 2023;Lone & Bhat, 2022;Mathew et al, 2022;Oquaye et al, 2022).…”

Causal Effects of Financial Education Intervention Aimed at University Students on Financial Knowledge and Financial Self-Efficacy

“…1 Many authors already agreed that students do not have sufficient knowledge about loans and need more or better information (e.g., Holland and Healy 1989). Further, many parents of college-aged students are poorly equipped to provide financial guidance for their children due to their own lack of experience in managing high amounts of education debt (Brady et al 2021). Students often misunderstand financial aid packages, which translates into poor financial decision-making (Rothstein and Rouse 2011).…”

“…Among these, the work of Shim et al (2019) demonstrated that individuals with greater financial self-efficacy perceived less difficulty in repaying their student loans and, in turn, experienced less loan-related stress. More recently, Brady et al (2021) examined factors associated with financial self-efficacy among student loan borrowers in the United States; their results showed that perceived student loan literacy prior to accruing higher education debt was significantly associated with financial selfefficacy. In truth, the literature on self-efficacy is abundant in psychology and related fields (e.g., Maddux and Gosselin 2012), but it has not been until recently that researchers have begun to study the concept of self-efficacy within the finance domain.…”