Debt Denial: Does Your College Student Know How Much He Owes?

By Carol Church, Writer, Family Album

Reviewed by Martie Gillen, PhD, Department of Family, Youth, and Community Sciences, University of Florida

Hey…we’ve got a question for you. How much is in your 401K? When was the last time you went to the dentist? And are all your key financial and household papers up to date and filed away in a neat, organized fashion?

If any of these inquiries gave you bit of a sinking feeling, you’re not alone. It can be hard to stay current with all the things we need to keep track of…finances, households, personal health. If you’re like me, you may have had an even harder time with this when you were young—for instance, right out of college.

College Students Surveyed

I thought about my “younger self” and her ability (or possible lack thereof) to fully track all her obligations when I read a 2014 report from the Brookings Institution on college students’ knowledge and understanding of their student loan situations. Brookings looked at two samples. The first was a group of students in the spring of their freshman year at a selective public university. They were asked two questions: How much did your first year of college (including room and board) cost? And how much student loan debt have you accumulated so far?

The second sample used data from the National Postsecondary Student Aid Study, a large, nationwide survey of college students. These first-year students were asked how much money they had borrowed through student loans during their first school year.

Knowledge of Debts and Payments? Not Great

So, how well did these young people understand their financial payments and obligations? As you might have guessed, not too well. Generally speaking, only about half of students were in the ballpark (within $5000 for costs and $1000 for loan amounts). Almost half underestimated their loans by $1000 or more, though many overestimated their loan amounts as well. Between 15 and 20% of students had loans of about $5500 (the loan limit for many freshmen), but thought they had no loans at all!

When it came to the characteristics of students who knew or understood more or less, there weren’t too many patterns. However, older students (not too surprisingly) were clearer on their obligations than younger ones, and community college students were most likely to accurately estimate their debt levels.

Being Informed is Key

We frequently feel concerned about skyrocketing college costs and the later-life burden of student loans, so it’s concerning to see that these students don’t seem to have an accurate grasp of their obligations. In fact, it’s not great to be confused in either direction, since concerns about loans and expenses can contribute to student’s decisions to drop out of school.

Research continues to demonstrate that college is very much financially worth it for students who graduate, but it’s crucial to end up with that diploma. A clear and continuing understanding of financial costs and obligations may help your college student make better decisions about spending, college choice, majors, and careers.

Further Reading

Paying for College —Consumer Financial Protection Bureau

Student Loan Help—Paying for College

References:

Akers, E. J., & Chingos, M. M. (2014). Are college students borrowing blindly? Retrieved from http://www.brookings.edu/~/media/research/files/reports/2014/12/10-borrowing-blindly/are-college-students-borrowing-blindly_dec-2014.pdf

Photo Credits: Chunumunu/iStock/Thinkstock

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Posted: May 8, 2015


Category: Money Matters, Work & Life
Tags: Education Planning, Family Resource Management, Personal And Family Finances


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