Brookings Report: Most Undergrads Unaware of College Costs, Debt Levels

By Brittany Hackett, Communications Staff

A majority of undergraduate students don’t know how much they are paying and borrowing for college, which can lead to poor decision-making about their education and future employment, according to a new study from The Brookings Institute.

The analysis used two data sources to determine how much students think they paid for their first year of college, as well as how much debt they think they have taken on, versus how much they have actually paid and borrowed based on administrative records. The first data source was a survey of first-time, full-time freshmen that applied for financial aid at a selective four-year public university in the northeastern U.S. 

The second data source was the most recent version of the National Postsecondary Student Aid Study (NPSAS), administered in the spring of the 2011-12 academic year. Brookings used that data to look at first-time, full-time undergraduate students at degree-granting institutions who had federal loans according to a data match with the National Student Loan Data System (NSLDS).

When asked how much they actually paid for their first year of college, 52 percent of students surveyed at the public university correctly estimated the cost within $5,000 of what they had actually paid, while 25 percent underestimated and 17 percent overestimated. Seven percent said they did not know how much they paid. When asked to identify how much they have borrowed to pay for college, only 38 percent of the students surveyed answered with the correct amount. Nineteen percent underestimated how much they have borrowed, 28 percent overestimated, and 16 percent did not know.

Using NPSAS data, Brookings was able to recreate the public university survey and found that if asked the same questions, 34 percent of respondents would have correctly known how much they paid for college within a $1,000 range. However, NPSAS data also indicated that the students had a higher likelihood of underestimating how much they have borrowed than students who participated in the study done at the public university, 46 percent to 19 percent.

The NPSAS data also showed that about half of students underestimate their debt level no matter what margin of error is offered— $500, $1,000, or 10 percent to 20 percent of their actual debt. In fact, close to 50 percent of students underestimate their debt by more than 20 percent or $1,000. Less than one-third of students can accurately estimate their debt levels within those margins, and about one-quarter overestimate. 

The report’s authors note that is it “surprisingly common” for borrowers to report being unaware of any federal student loan debt, with NPSAS data indicating that this occurs among 28 percent of first-time, full-time students with federal debt. Furthermore, 14 percent of students with federal debt report having no debt at all. 

The data shows that students lack “a firm grasp on their financial positions,” making it “unlikely that [they] will be able to make savvy decisions” about their education or future employment, the authors write. 

“More broadly,” they conclude, “it may contribute to popular narratives about crushing student loan burdens, which are inconsistent with the reality that these burdens remain manageable for most borrowers.” These narratives are “discouraging students from using debt to make investments in themselves that they could not otherwise afford.”


Publication Date: 12/12/2014

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