College freshmen still don’t understand what they’re doing when they sign for a student loan.
Not only that, but they’re rarely aware of the different options to pay off the loans, according to NPR.
Loan services, which the Department of Education contracts with to collect debt payments, don’t have to make sure that students are aware of their payment options. Those servicers have come under increased scrutiny from presidential candidates, and the department has made some informative efforts about income-based repayment plans, but for the most part, students don’t always know where to go if they’re worried about making payments.
Part of the ignorance comes from students relying on their parents for information on financial aid and student loans, according to a survey from LendEDU, a marketplace for loan refinancing. About 85 percent of students had their parents worrying about the details of their student loans. Knowledge about interest rates, subsidized loans, and refinancing was slim. Regardless, about 42 percent of students believed they could repay their student loans. Another 21 percent weren’t sure, and about 37 percent resigned themselves to the fate they’ll stay in debt.
As student debt becomes a more pressing issue, as it’s emerged in the Democratic presidential debates, that should decline. The Department of Education is pushing for greater awareness of their income-based repayment plans, and even a bankruptcy law firm made a college graduate estimator to help students know whether they can afford a school, given their expected salary.
Those efforts, however, target students who already took out loans. For high school graduates about to take out hefty loans, that’s too late. The Department of Education, before granting access to loans, could require students to take a financial literacy quiz, or impose borrowing limits. Some borrowing limits already exist, but they haven’t prevented large debt accumulations. That would have to be limited by the colleges who accept the loan money, even when it’s unlikely that those students could repay them.
Until college costs stop rising, or the average graduate doesn’t benefit from a college degree when they enter the workforce, the problem isn’t likely to fade. Even though the Consumer Financial Protection Bureau offers a student loan guide, using college as career advancement will continue unabated, as will loan ignorance, so long as someone benefits.
