Photographer: Chris Goodney/Bloomberg

American Students Know Almost Nothing About Their College Loans

People don't know what they owe, how to repay it, and what the government can do to collect the debt.

Handing an 18-year-old a loan for tens of thousands of dollars to get a college degree comes with many risks. One is that the borrower may not understand anything about the contract being signed.

A new study suggests that young people with education debt don't know the most basic facts about their loans. The survey, conducted in January by Lendedu, a company that provides information about loan refinancing options, adds to a growing body of research into the widespread ignorance among young people about debt that could follow them to their graves.

When Lendedu talked to 477 undergraduate and graduate students at three Bay Area campuses, it found that just 6 percent of them knew how long they would be repaying the debt. Only 8 percent knew the interest rate on their loan. (That could explain why loan collectors, such as Nelnet, need to broadcast on Twitter that federal loan interest rates are set by the government.)

Twitter: Nelnet on Twitter


More than 90 percent of the students did not know which type of loans accumulate interest during school and which do not. Seventy three percent thought that Sallie Mae, which for years collected federal student debt, was a person rather than a company.

The students in the survey also dramatically underestimated the amount of education debt in the country. Fifty-nine percent of the students surveyed said the total outstanding student debt was in the “millions.” Americans hold about $1.3 trillion in student debt.

For many students, ignorance about the national debt burden may mirror a more personal oversight: People do not have any idea how much they owe. Of 599 undergraduates surveyed by Brookings in 2014, just 38 percent of those with loans were able to identify how much they had borrowed. Nineteen percent underestimated their total loans, and 28 percent overestimated the figure. Brookings also found that only a slight majority of students (52 percent) knew how much their colleges were charging them in tuition and room and board.  

“The lack of literacy about the personal finances of college going is almost certainly leading some students into decisions that they later come to regret,” warned the Brookings report. The study's authors, Elizabeth Akers and Matthew Chingos, wrote that without financial savvy, students would not be able to choose the majors or career tracks that would make it easiest to repay the money taxpayers have lent them. By the time borrowers realize the full extent of their debt, Akers and Chingos wrote, they may have lost the chance to prepare themselves for it. “The consequences of their decisions come as a surprise to them once it’s too late."

To add insult to injury, most students seem generally clueless about what the government can do to them if they stop paying back their debt. A Federal Reserve Bank of New York survey released in June 2014 found that just 28 percent of student debtors knew that the government can take money from their wages, Social Security payments, and tax refunds to recoup outstanding loans. Only 37 percent understood that if one declares bankruptcy, it is extremely hard to get rid of student loans, unlike almost every other form of consumer debt.

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