Photo (cc) by Sarah Mirk
Rising college costs are often blamed for contributing to the nation’s exploding student loan debt, but a new study shows that uninformed borrowers might also contribute to the problem.
LendEDU, a marketplace for student loans and student loan refinance, surveyed 477 students about their loans and the financial aid process.
They included undergraduate and graduate students, both male and female, with both federal and private loans. The students’ responses indicate that they don’t know the basics of their loans.
For example, just 7.9 percent of the students surveyed knew their current interest rates, and only 6.1 percent knew their repayment terms.
Maybe the borrowers are part of the problem. Yes, the rising costs of higher education have forced more students to use financial aid and student loans. However, it appears that student loan borrowers aren’t fully understanding their loan obligations.
The survey also found that, of the students surveyed:
- 92.87 percent do not know the difference between subsidized and unsubsidized loans
- 97.9 percent do not know which loans accumulate interest in-school or during deferment
- 71.07 percent do not know the basic risks of a co-signer
- 85.11 percent rely on their parents for financial aid and student loan information
- 1.88 percent know what “FAFSA” stands for (Free Application for Federal Student Aid)
- 75.05 percent know how interest rates work
- 72.95 percent thought Sallie Mae was a person, not a company
- 58.9 percent thought the total amount of outstanding student loan debt was in the millions (In fact, student loan debt exceeds $1 trillion, according to the Consumer Financial Protection Bureau.)
- 96.02 percent did not know that student loan refinancing was an option after graduation
LendEDU co-founder and Chief Executive Nate Matherson tells CBS MoneyWatch that the vast majority of students don’t realize their loans accumulate interest while they are in school. But paying off accumulated interest in school can save students thousands of dollars in interest expenses over the life of a loan.
Students’ reliance on their parents for financial information could also hamper the loan repayment process, Matherson says:
“If parents handle the entire process, I believe that the student won’t fully understand their debt obligations. Moreover, after graduation the student will not be in a good position to take control of their debt.”
Are you surprised by how little students know about the basics of their own loans? Share your thoughts below or on Facebook.