(Bloomberg) — Handing an 18-year-old a loan for tens of thousands of dollars to get a college degree comes with many risks. One is that the borrower may not understand anything about the contract being signed.
A new study suggests that young people with education debt don’t know the most basic facts about their loans. The survey, conducted in January by Lendedu, a company that provides information about loan refinancing options, adds to a growing body of research into the widespread ignorance among young people about debt that could follow them to their graves.
When Lendedu talked to 477 undergraduate and graduate students at three Bay Area campuses, it found that just 6 percent of them knew how long they would be repaying the debt. Only 8 percent knew the interest rate on their loan. (That could explain why loan collectors, such as Nelnet, need to broadcast on Twitter that federal loan interest rates are set by the government.)
Twitter: Nelnet on Twitter
More than 90 percent of the students did not know which type of loans accumulate interest during school and which do not. Seventy three percent thought that Sallie Mae, which for years collected federal student debt, was a person rather than a company.
The students in the survey also dramatically underestimated the amount of education debt in the country. Fifty-nine percent of the students surveyed said the total outstanding student debt was in the “millions.” Americans hold about $1.3 trillion in student debt.
For many students, ignorance about the national debt burden may mirror a more personal oversight: People do not have any idea how much they owe. Of 599 undergraduates surveyed by Brookings in 2014, just 38 percent of those with loans were able to identify how much they had borrowed. Nineteen percent underestimated their total loans, and 28 percent overestimated the figure. Brookings also found that only a slight majority of students (52 percent) knew how much their colleges were charging them in tuition and room and board.