A recent survey by Millennial Personal Finance (MPF) shows a large majority of millennials know little concerning their own student loans. In many cases, students even acknowledge this but choose to remain ignorant on the subject.
MPF partnered with Pollfish to survey 500 student loan borrowers, consisting of currently enrolled students as well as those recently graduated between 2014 to 2017. The results display a saddening level of financial illiteracy.
For instance, 56 percent of these loan borrowers didn’t know the interest rate on their student loans, 15 percent didn’t think they would be required to pay back their loans, 34 percent of borrowers believed the federal government is going to forgive their loans, and 59 percent didn’t know that the standard repayment term on a federal student loan is ten years. On a wider scale, 68 percent of respondents didn’t realize the country’s total student loan debt had passed a trillion dollars. It’s currently nearing $1.5 trillion.
The survey also went beyond basic student loan queries. A whopping 63 percent of respondents didn’t know that Betsy DeVos is the Secretary of Education. When asked to choose among John King Jr., Betsy DeVos, Elizabeth Warren, Janet Yellen, or none of the above, 25 percent responded with Elizabeth Warren.
If one can glean anything positive from these results, it’s the respondents’ honesty and self-awareness of their ignorance. When the MPF survey asked respondents to grade themselves on their knowledge of student loans, most (57 percent) gave themselves a C or lower.
In February 2016, Citizens Bank conducted a survey of college graduates with student loan debt. 36 percent of respondents said, “they would have rethought attending college if they knew the costs associated with it from the get-go.”
On face value, these results appear to bolster the argument made by many in older generations that millennials lack basic responsibility. However, the easy availability of federal loans, the student loan policies and rhetoric from the Obama administration, and parents’ influence in their children’s’ education choices have contributed to the “out of sight, out of mind” view that many millennials take toward student loan debt.
A UCLA study found a strong correlation between the availability of federal loans and the costs of college tuition. In one example, the parent PLUS loan program originally provided unlimited loans to parents for their children’s tuition. However, UCLA found that when the federal government tightened the program’s availability based on parents’ credit scores, colleges with higher risk parents suddenly lowered their tuition.
In the 2012 election, many millennials felt that Democrats were more in tune with them on the issue of student loan debt than Republicans. But as Bill McMorris from the Washington Free Beacon noted, the MPF survey shows how the previous administration’s loan forgiveness program consisted of more perception than reality. For instance, President Obama’s program excluded private sector employees entirely and rejected nearly 500,000 applicants from the public and nonprofit sectors whom the program was designed to help.
Lastly, one must consider parental involvement in their children’s education and loan decisions. A 2014 study found that students whose parents decide for them to take out federal loans are more likely to think they have no debt at all, or greatly underestimate how much they will owe after graduation. The study also found that this often gives students “the informal understanding” that their parents will later repay the loans themselves.
Altogether, young loan takers are unaware of the gravity of their actions when they sign on the dotted line and aren’t realizing their financial mistakes until it’s too late. Whether parents or the federal government will bail them out is a question that only time will answer.