You're Probably Wrong About How Much Debt You Have

Almost a third of students with federal debt say they don't have any federal debt

People protest their student debt at a 2012 rally in Washington Square Park in New York, New York.

Max Lib/Flickr

College students know disturbingly little about how much debt they're taking on—in fact, almost a third of students with federal debt don't know they have it at all, a new report shows. The least confused students are the very group characterized as the easiest prey for loan sharks: those at for-profit colleges

For a Brookings Institution report released Wednesday (PDF), researchers looked at a nationwide sample of first-year college students and compared the amount of federal loans they said they'd taken out to figures from a national database that tracks federal borrowing. When asked whether or not they had federal loans, roughly a third of indebted students at community colleges, public colleges, and private colleges incorrectly said "no." By contrast, 18 percent of students at for-profits failed the question, the report said. 

While for-profit schools, who've increasingly come under government scrutiny, are regularly accused of taking advantage of low-income students through all sorts of schemes, the report shows these students aren't as misinformed about their debt as popular perception suggests. In fact, the Brookings researchers didn't find any strong relationship between how accurate a student was in guessing their debt load and how wealthy their family was (as measured by how much the student expected their family would financially contribute to their education). That chips away at the narrative that "for-profit colleges [are] preying on unwitting students who do not understand that they are signing up for significant debt loads," Brookings researchers Beth Akers and Matthew Chingos write.

Still, large shares of students seem to be borrowing more money than they realize. In the short term, that means they may pass up job opportunities that would have helped them tackle their loans faster or major in something they otherwise wouldn't have, the report says. Years later, debt can endanger not just one's financial future but their happiness and health.

Many experts maintain that, even with mounting concerns about student debt, a college degree is a worthwhile investment. Yet by ignoring or forgetting the reality of their debt, students may not be managing that investment well, Akers says.

"What I see happening here is that a lot of people are making good investments by mistake—they're essentially doing it blindly," she says. "The concern in the long run is that, with pretty rapid tuition inflation, someday, that's not going to be true."