Millennial Graduates Clueless About Student Loans, Reveals Citizens Bank Survey
Posted By Donna Fuscaldo on April 15, 2016 at 9:20 am
Buyer remorse isn’t new, but regretting attending college because of your student loan debt is for the thousands of millennials who think they got a bad deal.
For some, it’s the sheer size of their debt that has caused them to regret going to college while for others it’s the complications associated with paying it off that has made them disenfranchised. But either way, many millennial college graduates aren’t happy with their purchase once they finished college, according to a new survey by Citizens Bank.
“Unfortunately, the long-term cost of college is leading some graduates to question the value of their investment,” says Brendan Coughlin, president of consumer lending at Citizens Bank. “The long-term cost of college continues to be a major challenge for Millennials, even after they have established themselves in the workforce and significantly improved their credit from where they were when they started school.”
Millennial graduates clueless about balance, interest rate on loans
According to a survey of millennial college graduates that have student loan debt, 57 percent said they regret borrowing as much as they did, while 36 percent said they wouldn’t have gone to college if they knew how much it was going to cost. What’s more, 15 percent of graduates reported not knowing how much they currently owe, and 58 percent of millennials underestimate their monthly student loan payments. Even more alarming, 59 percent have no idea when they will be able to pay it back. And that’s with an average student loan debt of $41,286.60, higher than the national average of around $30,000.
That disconnect between going to college and not knowing how much it is going to cost can seem eyebrow raising, after all, shouldn’t graduates be able to easily figure out how much they owe and pay it back each month – similar to how they would handle a credit card bill or mortgage? But the Federal government can take some of the blame for making it so complicated to borrow money and pay it back.
Take loan servicing for starters. While the Federal government is the lender, it outsources to a number of different loan servicers that manage the loan for the government. The student doesn’t get to choose which loan servicer to work with and if they have multiple loans they could have several loan servicers, which means multiple student loan bills each month. What often happens is that borrowers who get bills in the mail from student loan servicers and not the federal government often ignore them, figuring they don’t have an account with the company sending the bill.
Other government agencies like the Internal Revenue Service outsource as well but what is different is with the IRS all of the information sent to taxpayers is marked by the IRS, not the servicer. “When a tax preparer files our tax return it is with the IRS as far as we know,” says Karen McCarthy, director of policy analysis at the National Association of Student Financial Aid Administrators (NASFAA). “The IRS has a lot of tax returns processors and contractors and we don’t know that because it’s behind a curtain. Why can’t student loans work in a similar way?”
White House aims to make repayment easier
Recognizing that there has to be a better way for borrowers to access all their student loans, earlier this month the Department of Education revealed in a blog post that it is working on developing a new “state-of-the-art loan servicing system,” in which borrowers have a single online loan management platform that lays out all of their federal loans in one place. Borrowers will be able to make payments and apply for benefits. That will eliminate the need to track down each loan servicer to figure out the total owed. To eliminate confusion, all of the communications will be branded as the Department of Education, not the individual loan servicer.
While a streamlined process to pay back federal student loans can go a long way in helping confused borrowers, it’s not the only area that many graduates are in the dark about when it comes to student loans. Citizens Financial Group found in its survey that 37 percent of millennial graduates didn’t know how much interest they were paying on their loans. That is particularly troublesome because in a low-interest rate environment there are opportunities to refinance if the interest rate is out of whack. The average rate on a Federal student loan is around 6 percent but private loan interest rates can vary, potentially costing borrowers more than necessary.
Ask any mortgage borrower what their interest rate is and more often than not you’ll get an answer in seconds. Ask a student loan borrower the same question and most of the time it evokes silence. “Part of this (lack of knowing) comes from not fully understanding what they are committing to when they sign up for student loans,” says Citizens’ Coughlin. “It’s a clear indicator of the importance of paying attention to the terms of your student loans.”