Most Students Lack Basic Information About Their Student Loans
Posted By Terri Williams on November 25, 2015 at 2:20 pm
Student loan debt has reached record levels, and over 40 million Americans currently have at least one student loan. Some of these borrowers are college graduates, while others never completed their education. And research shows that millennials saddled with student loan debt are often unable to buy homes or make other major purchases as they struggle to pay down their loan amounts.
Many borrowers may quality for income-based repayment options or other means of easing their loan burdens. However, in many cases, they don’t know enough about their student loans – or the borrowing process – to inquire about the alternatives that may be available.
A recent survey by iontuition reveals that most students lack basic information regarding their student loans. For example:
- 73% don’t know how to find out if they qualify to make lower monthly payments
- 51% qualify for income-based repayment, but only 13% are enrolled in this program
- 47% don’t know the interest rate on their loans
- 45% have not received any type of repayment counseling
- 70% think that paying back their student loan is harder than it needs to be
- 48% don’t know who their student loan servicer is
- 31% don’t know how to contact their student loan servicer
Are institutions withholding vital information, is there a lack of communication between parties, or are students simply failing to retain this information? GoodCall contacted three experts to shed light on why so many borrowers are in the dark regarding their student loans.
Federal loan servicing process
The issue isn’t on the loan-servicing end, according to Trina Wilson, Assistant Director of Federal Loans at Middle Tennessee State University. Wilson says that prior to the disbursement of federal student loans, all first-time borrowers must take loan entrance counseling and sign a Master Promissory Note (MPN).
“The entrance counseling helps to explain to students how the loan process works, debt and money management, and it reminds the borrower that federal student loans must be repaid,” explains Wilson. “The MPN is the binding agreement between the student borrower and the loan servicer, where the student agrees to repay the loan.”
After the federal student loan is approved, Wilson says the student borrower receives disclosure information from the loan servicer. “The disclosure information reminds the student of the interest rate that is tied to the loan, the amount borrowed, the anticipated disbursement date, et cetera.”
While she can’t speak for all colleges, Wilson says her school recently started sending reminders to students to go online and check the National Student Loan Data System (NSLDS) for important information regarding their federal student loans.
She explains that the NSLDS provides student borrowers with detailed information, including their interest rate for each federal student loan, the current status of their loan, and also contact information for their loan servicer.
Wilson adds, “Once a student is enrolled less than half-time, the student is sent information on Exit Counseling. During the Exit Counseling session, students gather more information on how to prepare to repay the loan debt and various repayment options available.”
Maturity level of borrowers
The information appears to be readily available, so how can so many students be in the dark regarding their student loans? April Masini, a relationship expert and author who runs a popular relationship advice site, AskApril.com, reminds us that students are often between the ages of 18 and 21 when they get student loans. “That age group doesn’t have a lot of life experience, and the concept of a loan that is larger than any income they’ve probably ever had is hard to grasp in its entirety.”
And when students graduate or discontinue their education, Masini says they’re often consumed with other more pressing issues, “They’re trying to figure out where to live, where to work, how to get a job, and how to balance getting a job they don’t love to pay the bills with getting job they do love in their desired field.”
But Masini doesn’t put all of the blame on the students – she believes that the organizations giving out these loans bear some responsibility as well. “When lenders agree to fork over four and five figure checks annually to adults who are barely adults – and have never had a job – they’re putting themselves in murky payback waters,” she says. “The student loan repayment problem isn’t just a student problem.”
The need for financial education
Some of Masini’s sentiments are echoed by Regina Blackwell, a Certified Budget Counselor at Transformance, Inc., a Dallas, TX-based consumer credit counseling service. “In many cases, applying for a student loan is the first time these young adults have been accountable for their own spending. They often are ill-prepared to handle the intricacies of the details and the process.”
Blackwell says they need to ask about the terms, interest rates, and repayment conditions, and regardless of what type of loan they get, she says it must include counseling about the loan and a financial plan in general. “Pre-planning for college spending and budgeting are absolute musts, but unfortunately, we’re just not seeing it handled properly and the results speak to the underwhelming statistics,” says Blackwell.
Blackwell’s company, Transformance, actually has a pre-loan counseling program that goes to local high schools, community colleges and college campuses to inform and educate students on student loans, budgeting and money management. The program helps determine expenses that will occur and also offers assistance on finding student loan cost-reduction factors.
Programs like Transformance may be the key to educating students before they fall into risky financial behaviors. Research has shown that many college students tend to have high credit card balances and don’t tend to set budgets or manage money effectively. Ignorance regarding student loans may be a symptom of a larger problem. If this is the case, institutions and lenders need to do a better job of providing a sound financial foundation to prepare students for the monetary responsibilities of adulthood.