Many in Dark About Their College Debt
A recent Brookings Institution report confirms for the first time how severely uninformed many college freshman are about the impact of the debts they’re taking on to fund their education.
This isn’t entirely surprising. But with tuitions continually rising and students now often forced to borrow the equivalent of a house down payment by the time they graduate, the Brookings findings should serve as a wake-up call:
- Half of the full-time freshmen surveyed “seriously underestimated” how much they were borrowing.
- Among students known to have federal college loans, four out of 10 either said they didn’t have any federal loans or didn’t have any debt at all.
According to the report, “Students who do not have a good idea of their level of borrowing may make expensive mistakes that they will later come to regret.”
It’s not that students remain in the dark. By the time they’re finishing college, the prospect of burdensome payments can discourage students from pursuing their passion or seeking employment that is more personally rewarding than it is remunerative. One 2011 study found that graduates with debt gravitate to higher-salary jobs and are less likely to go into lower-paying public interest jobs, such as teaching or government and non-profit professions.
For other students, the first realization of the consequences can come when they’re “surprised or even fearful” about the size of their first monthly loan payment after graduating, the study said.
It seems unrealistic to expect teenagers fresh out of high school to foresee the ramifications of substantial debt. So who is responsible for making sure they don’t walk blindly into such a critical financial decision?
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Parents have the responsibility of making sure students know how much is being borrowed and what paying it back will mean. Our daughter had 2 options–one college with no debt due to a huge scholarship, and another one with a smaller scholarship that would have required some debt. We projected the costs over the 4 years, including the total amount of debt to be assumed. We then explained what this would mean in life after school in concrete terms. It was the equivalent of having a Lexus car loan to pay back, without the car in the driveway. She chose to attend the school without debt. There is really no reason to be unaware of the debt being taken on because taking the debt requires a person first to read the terms and sign it. Students should be taught never to sign something they don’t understand, and never to sign something they haven’t read. Also, it is not difficult to figure out loan payments with a little research concerning loan repayment rules, including income-based repayment. While income is uncertain ahead of time, an astute family can use different likely scenarios and assumptions to project the real-world impact of having to repay loans so their student can make an informed decision about student debt.