Why Student Debt is a Top Concern Among Financial Literacy Experts
By Dan Kadlec
November 16, 2016
More than a quarter of Americans have student debt. But many do not understand their loan repayment options, and at the time they took out their last loan most did not understand what their monthly obligation would be, new research shows.
This data comes from the FINRA Investor Education Foundation’s 2015 National Financial Capability Study, which was released over the summer and has been analyzed by the Global Financial Literacy Excellence Center.
The GFLEC analysis, released this week, underscores the need for programs that make clear to student borrowers exactly what they are signing up for. Student debt now tops $1.4 trillion. It is holding back the economy as debt-burdened young people delay purchases of things like a car or home, or marriage and children.
Student debt isn’t just a problem for young people. Those aged 18 to 34 are the most burdened: 45% have student debt. But 27% of those ages 35 to 54 and 9% of those age 55 and older carry student too. Often, their loans are in support of children or grandchildren. Older people with student debt compound problems for the economy, as this is a time when they should be saving money to spend in retirement.
Borrowers across the board own up to not thinking through the impact of their loans: 54% did not try to figure out their monthly payment before taking the loan and 53% said they would do it differently if given another chance. Nearly half of borrowers are concerned they will not be able to pay off their loans. Student loans have the highest rate of delinquency out of all consumer debt products, the Federal Reserve Bank of New York found.
As a gauge for how financial education might change the equation: Those who calculated the monthly payments when they applied for their loan were far more likely to say they would do nothing different, according to the analysis. That simple step led many to consider other options, and ultimately to better choices like cheaper and more flexible federal loans.
This is an important battleground in the fight for financial literacy. Young people need to understand the weight of college debt when choosing a loan, considering the cost of the college they want to attend and the earnings potential in their field of study. When millions of young adults start their careers swamped with debt it holds them back, and it sends ripples through the economy.