WASHINGTON – A majority of first-year undergraduates can’t correctly estimate how much student loan debt they’re taking on. More surprising, among college freshmen who have taken out federal student loans, more than a quarter (28 percent) don’t think they have any federal debt, and 14 percent don’t think they have any debt at all.
Those are the findings of a new Brookings Institution report authored by Beth Akers and Matt Chingos. Akers and Chingos have argued in the past that claims of a student debt “crisis” may be overblown: the shockingly high debt loads that make for good media narratives are actually pretty rare. While it’s true that more and more students are taking out loans to finance college, the median debt burden is generally not too bad, especially when you consider that the returns on a college investment have never been greater.
Nationally, less than one quarter of first-year students were able to correctly estimate their debt totals within 10 percent of the actual value. A majority – 51 percent – underestimated their debt, while another 25 percent actually overestimated it. These numbers come from the National Postsecondary Student Aid Study, a representative survey of college students conducted in the spring of the 2011-2012 school year.
If anything, these numbers probably undercount the students who don’t understand their debt loads: “These results are particularly surprising given that we have limited the data to first year undergraduate students, who are unlikely to have student debt from prior years and thus should not be confused by previously accumulated debt,” Akers and Chingos write.
The new research underscores that students’ perceptions of their debt matter when it comes to making choices affecting their education and careers: “Students who do not have a good idea of their level of borrowing may make expensive mistakes that they will later come to regret,” they conclude. “They are also likely to be surprised or even fearful when their first loan payments come due, which may impose an emotional burden on borrowers.”
College kids may be uniquely ill-equipped to understand the implications of taking on debt. Many college students have never had the experience of managing household finances, writes Akers in a blog post.
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