Report Suggests More Counseling Needed for High-Debt Borrowers
High-debt student loan borrowers could benefit from additional counseling, according to a recent survey performed by National Economic Research Associates (NERA) on behalf of the Young Invincibles, a national organization representing the interests of 18 to 34 year-olds.
The survey of 6,654 undergraduate and graduate student loan borrowers demonstrates an alarming lack of understanding of various aspects of student loans. The survey found that:
- About 65% misunderstood or were surprised by aspects of their student loans or the student loan process.
- About two-thirds of private loan borrowers, including those who took out both private and federal loans, said that they did not understand the major differences between their private and federal options.
- About 20% said they misunderstood or were surprised by repayment terms, 20% said they were surprised or misunderstood their monthly payments, and 15% misunderstood or were surprised by their loans’ interest rates.
The report shows that a high-debt borrowers make up a small percentage of all borrowers. Only 5.3% borrow more than $75,000. More than 72% borrowed less than $25,000 and 22.4% borrowed between $25,000 and $75,000. The report recommends several steps to help high-debt borrowers better understand student loans, including:
- providing more robust information to high-dollar borrowers with federal loans so the understand income-based repayment, deferment, and forbearance options
- increasing student loan literacy efforts for students exploring graduate options before they take out additional debt
- including better, earlier guidance in loan entrance counseling that provides borrowers with information on the effects of interest rates, definitions of terms and fees, and approximate monthly payments
- requiring loan documents to be understandable and standardized, with repayment terms and potential fees disclosed in a way that is clear for borrowers
The survey found that 60% of respondents learned about their loan program from a college counselor and 35% said they learned through a college website. Roughly 60% of private-only borrowers said they obtained information about their loans from their institution compared to over 80% for borrower groups with federal loans.
"These findings suggest that schools are indeed in a unique position of influence with regard to student borrowing," the report states.
More than half of respondents (56%) with private loans only said that their school offered them private loans to pay for tuition or other education related expenses. Nearly 70% of these borrowers said that they were not informed by their loan company, bank, or school about their federal student loan options when they took out their private student loan(s). In addition, 57% disagreed that their school or financial aid office provided them with information relevant to their loans.
"While colleges are making progress in educating private loan borrowers, it is imperative that more is done," the report states.