Students Don't Understand Their Own Loans: Study

Tyler Dowden speaks out against rising student loans.

Cost-conscious collegiates, take heed! Before signing your financial future to the likes of Wells Fargo or Citigroup, take a look at the fine print on that loan agreement -- or risk ending up like the 65 percent of Americans surprised by their student loans.

Young Invincibles, a not-for-profit organization based in Washington, D.C., recently surveyed 6,500 undergraduate and graduate students who had taken out student loans.

The results were less than encouraging.

According to Healey Whitsett, author of the study and senior analyst at NERA Economic Consulting, two thirds of those who took out private student loans did not understand the difference between private and federal options. Almost two thirds were surprised by either their repayment terms, their monthly payment or their interest rates. And perhaps most surprisingly, 80 percent of the students surveyed reported gathering some information influencing their decision to take out student loans from their college counselors or website.

As Bloomberg reports, the Federal Reserve Bank of New York claimed outstanding student-loan debt of $867 billion in the fourth quarter.

Recognizing the ever-growing issue of debt from student loans, Congressman Hansen Clarke (D-Mich.) introduced the Student Loan Forgiveness Act of 2012 on March 8. Its goal, as written in the bill, is to "increase purchasing power, strengthen economic recovery, and restore fairness in financing higher education in the United States through student loan forgiveness, caps on interest rates on Federal student loans, and refinancing opportunities for private borrowers, and for other purposes." Young Invincibles, a group that aims to represent the interests of 18 to 34 year-olds, has proposed regulation of the private student loan market with the similar goal of reducing debt from student loans.

Still, the Whitsett study reports a high incidence of misunderstanding among students who take out loans to pay for college. Are you one of the two-thirds of Americans majoring in debt?

Students Around The Country Who Are 'Majoring In Debt'

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• Brittany Baker, Allegheny College/Sarah Lawrence College

  I'm all for paying high prices for good value -- and my education was certainly of quality -- but I'm not in the market to be abused. From interest rates to the ease of borrowing, to confusion of terms and steadily climbing price of college tuition, I guess I have to thank all of the higher education system while I have the floor to speak. To the loan companies, the banks and private colleges: thank you. I and my peers will forever be indebted to you. <a href="http://www.huffingtonpost.com/brittany-baker/debt-up-to-my-neck_b_945267.html" target="_hplink">Read more...</a>

• Mike Vattuone, UC-Berkeley

  I currently owe around $23,000 not including interest and Parent PLUS loans, which my mother is still generously paying off. She is 60 years old and works 11 to 12 hour days selling flooring, which her employers pay on commission and only if no mistakes are made. She can't retire because she has to help me pay back my loans, and she won't let me pay the PLUS loans myself. It's very frustrating. <a href="http://www.huffingtonpost.com/mike-vattuone/colleges-catch22_b_945213.html" target="_hplink">Read more...</a>

• Quinn Anderson, Boise State

  As an average, working-class, white American male who is neither left-handed nor a great athlete, the options for scholarships available to me have always been slim. Combine that with my parents' income -- which is above Pell Grant eligibility and too high to be considered for greater loan amounts -- and you get my situation. At the end of the spring 2012 semester I will be $50,000 plus in debt, which means I will have reached my loan cap for borrowing. With a credit rating that sunk to an embarrassing low years ago, there is no way for me to borrow using private loans to finance my education. <a href="http://www.huffingtonpost.com/quinn-anderson/quinn-anderson-27-boise-s_b_943879.html" target="_hplink">Read more...</a>

• Laquinda Settles, New York Institute of Technology

  I graduated from the New York Institute of Technology in May 2010 with a degree in Communication Arts; I am currently working 2 part-time jobs with no benefits and making $12 an hour. I'm also so over my head in debt with college loans. It's to the point that I'm considering filing for bankruptcy. I went to college to educate myself and make more money, but it feels like I dug my own grave. College is one of the biggest scams in the world; some of these institutions charge students between $700-$800 per credit for an undergrad degree. <a href="http://www.huffingtonpost.com/laquinda-settles/a-degree-in-hand-but-what_b_951098.html" target="_hplink">Read more...</a>

• Aleesha Nash, New York University

  I am a 31-year old woman originally from Ohio working and living in New York City area. I graduated with a Master's degree in Speech and Interpersonal Communications from New York University's Steinhardt School of Culture, Education, and Human Development in 2007. Logging into the Federal Student Aid website I see that today my balance is $104,104.63 for a percentage of the information in my head. <a href="http://www.huffingtonpost.com/aleesha-nash/debt-thats-worth-it_b_945223.html" target="_hplink">Read more...</a>

• Jaclyn Cabral, Elon University

  I am a recent graduate from Elon University, a private school in North Carolina, and have $90,808 of college debt. Though my debt seems extremely high, Elon is also regarded as one of the most affordable private college educations. My story dates back to high school where my parents worked opposing shifts simply to make ends meet. I knew since middle school that I would go to a great college and venture away from my hometown. My motivation during the past 17 years of my educational career was to do well, go to a great college and then have no problem landing my dream job. <a href="http://www.huffingtonpost.com/jaclyn-cabral/post_2357_b_945238.html" target="_hplink">Read more...</a>

• Mike Newman, Ohio State University

  I graduated from the Ohio State University with a fine arts degree in 2004. This is what I settled on after changing my major four times in my first three years at school. Clearly college wasn't for me, but I finished it because I wanted to make my parents proud and thought it would improve my life. Neither of my parents went to college, but they managed a pretty good life for themselves. Like all loving parents they wanted me to have a better life than them and were duped into believing that college was the answer. From the first day in elementary school to my last day in high school, we believed the myth that college was the only real path to success. <a href="http://www.huffingtonpost.com/mike-newman/forced-to-fall-off-the-gr_b_945263.html" target="_hplink">Read more...</a>

• Brandon Woods, Hampton University

  I turned down a full ride at Michigan State (a school that ranks in the top 20 in my field, education) to get the HBCU (Historically Black College and University) experience at Hampton University. It was the best thing I could have done as far as experiences go, but the worst for my finances. They say you can't put a price on experience, but I can. Roughly $24,000 my freshman year, and it only got more expensive every year after that. <a href="http://www.huffingtonpost.com/brandon-woods/i-should-have-listened-to_b_951080.html" target="_hplink">Read more...</a>

• Erin Dunphy, Ithaca College

  I grew up with an insatiable need to explore the world around me. So I knew when I was going to go to college I was going to do two things: One, major in journalism and two, leave my home. It was time for me to blaze my own path. I had worked hard throughout high school and did all those things they tell you to do to get as much money out of the process as possible. I was an honors graduate and was involved in almost every kind of extracurricular activity. I did my best to be the girl any college would want -- and therefore would hopefully give money that she wouldn't have to pay back. <a href="http://www.huffingtonpost.com/erin-dunphy/excited-for-the-future-ev_b_945253.html" target="_hplink">Read more....</a>

From our partners

• 25 Signs You're A Hot Mess | Thought Catalog - thoughtcatalog.com

Comments

[ol'motherhen]

09:45 AM on 04/02/2012

If 18-to-22-year-olds don't understand that a college campus is an expensive place to live, then part of the solution is not high-interest student loans, but real education at an earlier age.

Here's an idea: 18-year-olds leave high school knowing how to do ordinary arithmetic and simple math, what compound interest is, and what it costs to feed, clothe, and shelter yourself in our society. Along the way, someone will have to break it to them gently that a college degree no longer guarantees a good job, or for that matter, any job at all.

But first, above all, they learn that a loan is not free money.

[Luis Trujillo]

12:26 AM on 03/27/2012

This is honestly very sad and I wonder why students don't prepare for this. I really hate to see these things happen. I'm going to college debt free. I created some videos on getting scholarships. PLEASE go to the youtube channel. It's a great resource. http://www.youtube.com/user/SteadyIncomeUniv?feature=mhee

[Mtoto]

01:24 PM on 03/24/2012

This graphic is very informative, and breaks down a complicated topic in more simple terms! http://www.collegescholarships.org/research/student-loans/

[bn92]

09:46 AM on 03/24/2012

In addition to scholarship money and working part-time in college, our daughters took out student loans. True, these are teenagers signing these contracts. We sat down with each of them and explained the entire process; if you are not well informed a financial aid officer or bank could explain the various loan options. Finally, we co-signed these loans,too. Recently, we took life insurance policies out on both daughters. You do not want to think about it but, should anything happen, we would have to re-pay those loans. Finally, they both attend excellent, in-state colleges. They will each owe under $50,000 after graduation or the equivalent of attending one full year at Boston College.

[samscram]

02:37 PM on 03/23/2012

And these are college grajuates.

It shows.

Do they read their contracts?

Did they ever read the newspapers?

Did they hope for a Govment welfare bailout to let them renege on their contracts.

At my expense?

If I'd bin been as smart as them I wouldn't a paid non of my college bills and just waited for the dole.

[Ty Knight]

10:51 AM on 03/27/2012

I'm sure that you are not taking into consideration that many of these young people were probably naive about their opportunities to find work after graduation. Not to mention, many of them were probably takin advantage of by shady bankers who don't tell the whole truth or any truth sometimes. (I learned that at 23 with a finance officer for a car, he told me I had to accept the extended warranty in order to lock in a lower interest rate. As a young kid, I believed him. I learned the hard way, fortunately that was only a $2,500 blunder).

[samscram]

07:26 AM on 03/28/2012

If nativity rules we are all in trouble.

[jpumpkin]

12:45 AM on 03/23/2012

It's a shame the amount of interest these companies, like Sallie Mae, are making. I pay close to $400 every month in interest alone for a private loan that I needed to take out to cover tuition (there is a federal cap). I paid about $40,000 so far, with $15,000 going to principal.
If I had that extra $400 I could buy goods. I am just one person, there are more like me.
I do not understand how a country so proud of allowing people the freedom to an education would stand by and allow these companies to take billions of dollars from the educated, preventing them from advancing in and in turn hopefully producing a better country.
We are a country that allows free housing, free food, free cell phones to individuals who do not have jobs, who sometimes don't even want to work, yet we are allowing those who tried to better themselves to sit by and watch their dreams crumble.
We are allowing parents who co-signed on these loans to tap into their own personal savings or retirement accounts because their child is working part-time at McDonald's because there are no jobs in their area of study and the collection companies are calling. Yes, it is true that the loans were taken out, I get that. I was told that taking out educational loans was a "good investment" or "good debt" Why are we allowing this? Is this what our founding fathers wanted?

[jpumpkin]

12:40 AM on 03/23/2012

Facts: I am paying back my student loans from a veterinary degree.
I am ahead of schedule and pay more towards my loans monthly to get out of debt.
I have a job, work 50 hours a week plus emergency calls
I cannot afford to open my own business, buy a new car, buy a new house, get married, produce children.
Sure you can look at those who have the degrees that you consider "worthless", but in reality there are actual hard working people, like myself, who would benefit from this passing. I worked 3-4 part time jobs, while double majoring in undergrad, worked 2 full-time summer jobs AND then went on to veterinary school.

[Caryn Banker]

08:47 PM on 03/22/2012

This is a very good s!te for understanding the fine details of how the student loans work:

http://www.studentloannetwork.com/

[StarSongs]

06:39 PM on 03/22/2012

I won't argue that it's not their responsibility to only take on student loans they can afford to pay back, but I also think we need to remember that a lot of these people are signing their student loan paperwork when they're around 18 years old. I know I didn't fully understand what I was signing at 18 either and I was a pretty bright kid. If I had I probably would have made more affordable choices. Young adults make stupid decisions all the time, especially when uninformed. I think it would be helpful if guidance counselors, teachers, and parents discussed the cost of college education and strategies for avoiding large debt loads with young adults. I know that some do, but I in my own experience this was largely not talked about. We certainly can't count on the lenders or colleges to explain to these kids the debt they're taking on. If they understood, they might make wiser financial decisions. Then the lenders would make less money and these absurdly priced private schools would find themselves with less students willing to pay their insane tuitions.

[Caryn Banker]

08:51 PM on 03/22/2012

I think the biggest problem is, at 18 fresh out of high school, (or still IN when you fill out the forms), you often have little to no idea what you will be going into, IF you will be able to pay them back, especially for current students going into this economy.

Personally, if my kids decide they will have an "undeclared" major, they will take a gap year and go when they figure it out.

[El Chingaso]

03:40 PM on 03/22/2012

Solution: two years of mandatory personal finance classes in high school (junior & senior years). Teach kids the mysterious code of finance and accounting that all of corporate America uses...to enslave them one-by-one. That would be a much better use of time & resources than, say, "culturally-oriented" courses about this group or that one.

[mallen1971]

03:13 PM on 03/22/2012

Many of these students could drastically reduce their college education costs if they went to a Junior or Community College their first 2 years and then transferred to a 4-year University to pursue their major. I don't think many employers care where you went to start your higher education, just where you finished.

[jpumpkin]

12:28 AM on 03/23/2012

Unless they want to go to a professional school (medical, veterinary, law). Then it matters a whole heck of a lot.

[mallen1971]

09:45 AM on 03/23/2012

I contend that gettting the basic courses out of the way at JC or CC will not affect acceptance to a post-graduate program as long as their college degree is from a 4-yr. university.

[tazscanner]

03:01 PM on 03/22/2012

You really have to have a masters in liberal victimization theory to want to blame everyone else for the loans you signed for.

[tazscanner]

02:52 PM on 03/22/2012

A master of degrees but doesn't understand the loan he signed? Sorry, not a lot of sympathy here.

[nermz345]

11:28 AM on 03/27/2012

no is really asking for ur sympathy, just reasonable consideration. despite what u've heard, there is a difference. and u act like they signed the loan after they got the degree. but i guess it is easier to be condescending then actually take the time to look at the issue and discuss it even if u DON'T agree,

[nermz345]

11:30 AM on 03/27/2012

insert "one" between "no" and "is"

[Leon Engelun]

02:37 PM on 03/22/2012

Students Don't Understand Their Own Loans ,,,,, that is because many of them feel the loans will just go away or someone will pay them,,,,,, no big deal.

[mallen1971]

03:18 PM on 03/22/2012

Maybe our POTUS could do a public service piece explaining how he managed to gather the funds to attend Columbia and Harvard. There may be a lesson in there for today's youth.

[El Chingaso]

03:34 PM on 03/22/2012

But did he really attend Columbia?

[Jerry Bourbon]

02:22 PM on 03/22/2012

You mean the poor dears did not actually READ the terms of the loan they were signing up for?

Too bad, so sad. Don't come whining to me about it.