What Americans Don't Know About Student Loans: A Lot

The New York Fed has been keeping an increasingly close eye on students loans, trying to understand how the more than $1 trillion in debt is affecting the wide swath of Americans who are borrowers. It recently added questions about student loans to its broad survey on consumer expectations, and a new analysis found that people don’t fully comprehend the ramifications of taking on student debt.

The survey covered 1,029 people, including those with and without debt. Only 28 percent of respondents knew that if student loans aren’t repaid, the U.S. government can garnish wages, withhold Social Security payments and tax refunds, and report the debt to credit bureaus. Even more people—35 percent—incorrectly thought the government couldn’t do any of those things or said they didn’t know what the government could do. Only 37 percent of those surveyed knew that students loans are extremely hard to shed in bankruptcy, a reality that differentiates student loans from other debts, such as mortgages and credit cards.

The survey found that people who have student loans know more about the consequences than those who don’t, and that’s even truer of those who have high debt loads. But about half of those with higher-than-average student debt didn’t have high comprehension of the issue. The survey also found that fewer than one in five people under 55 years old were “highly literate” on the topic, even though they make up most current and future borrowers.

The findings jibe with earlier surveys of student borrowers. In 2012, Young Invincibles, an advocacy group, and the economic consulting firm NERA found (pdf) that 40 percent of current or recent graduates who got financial aid said they didn’t receive any counseling about their federal student loans, as required by law. Of those who did receive counseling, only a little more than half found it informative.

Advocates have long called for more counseling and, more recently, for ways to simplify the student loan program. Some efforts, such as those by the Consumer Financial Protection Bureau’s new “Paying for College” website, have been made to help make people more knowledgeable, particularly before they take on debt. The New York Fed’s survey shows that people have a long way to go to understand even the basics.

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