Interesting survey from Student Loan report demonstrates the biggest knowledge gaps that college seniors have about their student loans. Let’s be sure students leave our high school classrooms knowing these key concepts BEFORE they take out student loans (my comments in sub-bullets):

• 65% of respondents didn’t know that the standard repayment term on their student loans
  • Why this is important: May choose longer repayment terms if they focus only on monthly payment
• 46% of respondents didn’t know how long of a grace period they had after graduation before making payments
  • Why this is important: May miss a few payments “out of the gate” or not budget for these payments which are due within 6 months
• 45% regret taking out as much student debt as they did
  • Why this is important: Not enough families plan for the 4-5 year college experience and therefore seem surprised at the student debt at the end. Less than 50% of students graduate college in 4 years which may be why loan balances lead to regret.
• 43% didn’t know that student loans had a fixed interest rate
  • I am actually not surprised by this as the loan rates are fixed but each tranche of student debt taken out may have a different interest rate since these loan rates are adjusted annually.
• 36% didn’t know their student loan balances within $20
  • I like what Indiana University and other colleges have done to fix this problem: Send annual updates of student loan balances so no surprises after 4 years. Better yet, if you have unsubsidized loans pay the interest while you are in school.
• 34% didn’t know the company servicing their loans
  • Why this is important: You better know this company so you know who to follow-up with should disputes arise
• 28% believe that the Dept. of Education will forgive all or part of their student loans
  • This is wishful thinking especially given the controversy over the existing loan forgiveness program.
• 28% believe that student debt can be discharged in bankruptcy
  • The standard for discharge in these situations is extremely HIGH so hoping you will get bailed out if you have financial difficulties down the road isn’t reasonable.
• 20% didn’t realize that not making a payment can damage credit score of a co-signer on a private student loan

Here are NGPF activities that can clear up these misconceptions and knowledge gaps:

• Calculate: How Much Should I Borrow For College? 
• Compare: Understanding the Types of Student Loans
• Analyze: Student Loan Decision Making
• Project: Simplifying Student Loans Infographic

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.