If you follow developments in the business of student loans, then you have undoubtedly heard all sorts of things that give the industry a characteristically shady outlook. Keep reading if you want more of that.
Certain statistics, like the collective student debt toll ($1.5 trillion) or the national default rate (11.3 percent), don’t inspire hope for the 40+ million borrowers currently struggling with debt, or the taxpayers who helped subsidize those loans.
If it’s such a big problem, wouldn't you expect college students to take student loans seriously? After all, failing to deal with student debt properly can become detrimental for any recent postgraduate.
Well, in a shocking new development, we’ve discovered a few things about the student loan industry and it’s “beneficiaries” that might shock you, or it might make you smack your forehead in exasperation.
Millennial Personal Finance polled 500 student borrowers currently in college as well as recent graduates from the Class of 2014 onward. We tested their basic knowledge on student loans by asking a few questions, and the results were uninspiring.
Here are a few things that stuck out to us:
When asked about student loan interest rates…
A whopping 56 percent of student loan borrowers didn’t know the interest rate on their student loans.
Furthermore, a good portion of student borrowers don’t understand variable interest rates whatsoever.
33 percent of respondents believed a variable rate can change based on the monthly payments made, while another 14 percent thought they would be able to change their rate at any time. (In the United States, a variable rate is based on the market rate which is set by the Federal Reserve)
Plenty of student loan borrowers dropped the ball when asked about how federal student loan interest rates are determined.
21 percent of student borrowers thought their grade point average influenced their federal student loan interest rate.
12 percent believed that school choice or choice of major impacted their interest rate.
24 percent thought federal student loan interest rates were determined by credit score. (federal student loan rates are set Congress after considering the 10-year Treasury note; private student loan rates are influenced by credit score)
It didn’t end there either. Aside from being uneducated in interest rates, many student borrowers struggled to answer basic questions about student loan repayment.
When asked about student loan repayment…
15 percent didn’t even think they were going to be required to pay back their student loans. (You do have to pay back your student loans.)
34 percent of borrowers believed the federal government was going to forgive their loans. (Some loans can be forgiven, but often only partially. It is generally hard to qualify for student loan forgiveness.)
As you can see, expectations are not clear when it comes to student loan repayment, but we also found there to be a lack of knowledge across the board when it came to some of the basics…
51 percent did not know the length of the post-graduation grace period on federal student loans. (six months)
59 percent of students didn’t know the standard repayment term on a federal student loan. (ten years)
Aside from repayment basics, we tested our respondents’ knowledge when it came to student loan refinancing. We found that…
25 percent of student loan borrowers didn’t know student loans could be refinanced. (Like mortgages, student loans can be refinanced.)
Furthermore, 20 percent thought only federal student loans could be refinanced. (Both federal and private student loans can be refinanced together with a private lender.)
So, from this, you know that students don’t know much about repayment or interest rates, but we asked a few other general questions that surprised us as well.
A couple other things that stuck out…
25 percent of respondents thought that Elizabeth Warren was the Secretary of Education, part of a larger group of respondents (63 percent) who did not know the Education Secretary was Betsy DeVos.
81 percent of respondents did not know that FAFSA stood for Free Application for Federal Student Aid.
A solid 58 percent thought a federal student loan required a cosigner. (Federal student loans do not require a cosigner; they require a borrower to fill out the FAFSA.)
We’re still not done. We have more results that help put the whole survey in perspective.
Topping it off…
When asked to grade themselves on their knowledge of student loans, the majority of respondents (57 percent) graded themselves at a C or lower.
We asked student loan borrowers where they got their information on student loans, and 40 percent said they were self-taught.
We thought the personal initiative was refreshing at first, but then again, maybe they were worse off. Especially after finding that…
7 percent of student borrowers think student debt had reached the “quadrillions of dollars” mark, while 68 percent of respondents didn’t think total student loan debt had exceeded a trillion. (Total student debt is between $1.4 to $1.5 trillion by some estimates)
At any rate, maybe this explains the lack of confidence that we found...
Only 14 percent of borrowers were confident they could repay their loans.
I wouldn't be confident if I was part of a "quadrillion" dollar problem.
This poll was completed using Pollfish, a company that specializes in running surveys and polls. Overall, the survey questioned 500 Americans who were either currently in undergrad with student debt or recently graduated with student debt from Class of 2014 – 2017.