College Students Underestimate Their Student Loan Debt

Based on a study using data drawn from two sources linking student survey responses to administrative records on cost and borrowing, a Brookings Institution report has concluded that “a significant share of undergraduate students do not understand how much they are paying for college or how much debt they are taking on.” The report indicated that 28% of college freshmen who have taken out federal student loans, do not think they have any federal debt, and 14% do not realize that they have any debt at all. Not only does a large percentage of students fail to grasp the extent or nature of their loans, but only a bare majority of college freshmen (52%) could estimate their actual costs of college within $5,000 accuracy. The report concludes: “It is possible, even likely, that this lack of knowledge will cause students to be surprised when their financial circumstances become apparent, perhaps when their first loan payment comes due. This surprise, or even fear, may impose an emotional burden on borrowers. More broadly, 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 (Akers and Chingos 2014).”