A survey of borrowers with high student loan debt released today shows that many did not fully understand what they were getting into as they entered the loan process.
High Debt, Low Information: A Survey of Student Loan Borrowers by NERA Economic Consulting and Young Invincibles, the Washington, D.C.-based student advocacy nonprofit, included responses from 6,500 undergraduate and graduate student loan borrowers, 25 percent of whom had outstanding loan balances at or exceeding $100,000. The average respondent to the study held about $76,000 in loans, providing an insight into borrowers with the top 5 percent of debt load.
The findings spotlight the need for improved loan literacy. According to the report:
• About 65 percent misunderstood or were surprised by aspects of their student loans or the student loan process.
• Of those who took out private provide loans, about two-thirds indicated they did not understand the differences between their private and federal loan options. (Other research has found students unnecessarily take out private loans when they could have taken out more affordable student loans.)
• The most misunderstood or surprising aspect of the loan process: repayment terms, amount of monthly payments, and interest rates.
• Most students (80 percent) get student loan information from their college’s counselors or website.
To remedy the situation, the report suggests better enforcement of the requirement that schools provide clear guidance about the differences between private and federal loans and the terms for each. It also calls for educating high school students about the vocabulary of student loan debt and earlier guidance for borrowers on the effects of interest rates, definitions of terms and fees, and approximate monthly payments.
About 37 million Americans have student debt and 60 percent are between the ages of 18 and 39. Two-thirds of graduating college seniors leave school with student debt. The average debt is about $25,000, according to the most recent survey from The Project on Student Debt.
The survey originally was administered by Young Invincibles and ForgiveStudentLoanDebt.com in December 2011 to January 2012.
A version of this news article first appeared in the College Bound blog.