IN THE NEWS: Do Students Realize How Much Loan Debt They're ...

Photo Credit: Iowa State University

As someone who was in college not too long ago, I know all too well how expensive school can be when you choose to finance it with student loans. I also know what a confusing mess it can be ? the process for obtaining loans was hardly straightforward, and even though I asked many questions of my overworked financial aid?adviser, I never really felt like I had much clarity in understanding what I was signing up for. While I was aware of my disbursements, I wasn?t always sure what the interest rates would be for each loan after school, and I definitely didn?t realize that I would be writing checks to five individual loan servicers once I entered into repayment.

So, I can?t say I?m terribly surprised to read on the Des Moines Register website that a recent study conducted by Iowa State University with its own students found that one in eight students didn?t realize they had student loan debt, and nearly 40% underestimated the amount of student loans that they owe.

The financial literacy study, which surveyed 801 undergraduate Iowans in fall 2010, also found 10 percent of students underestimated their debt by more than $10,000. Only 22 percent had not taken out loans.

The results show a need for additional financial counseling to help students understand their borrowing and how it will impact their lives after graduation, researchers said.

ISU, for the first time this summer, will send emails to all students showing how much they owe, their estimated monthly repayment upon graduation and a list of lenders, said Roberta Johnson, ISU director of student financial aid. Loan histories had previously been available, but not enough students were using the resource, she said.

The survey results did not catch researchers by complete surprise, said Cynthia Needles Fletcher, a professor of human development and family studies. The complexity of the college financial aid process and the fact that students accumulate debt over time makes it easy for a student to lose track of what they owe, she said.

SOURCE: Des Moines Register

Given that Iowa is among the top 10 states with high average student loan debt?(public university student debt is about 16%, or $4,250, above the national average of $25,250) and that two thirds of college students graduate with debt, this is a trend worth being concerned about? particularly when students receive little counseling from most universities to help them understand the impact that student loans will have on their post-graduation salaries. While the article says that the federal government is setting up a website to help them calculate their likely salary by major and minor as well as their debt obligations, this is likely too little, too late for many students who are already in the system, saddling themselves with enormous debts, and not even really understanding what it is that they?re signing up for.

I?ve been thinking for years now that student loan debt default is our next financial crisis. Let?s hope that these early indicators prompt the right level of action now ? otherwise, college may be unaffordable for the next generation and make things much tougher on us all.

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