WASHINGTON (4/17/13)--Nearly half of high school seniors in the U.S. don't know how much money they will need for college, and even more don't understand basic student loan terms, according to the Credit Union National Association's first annual High School Student Borrowing Survey.
Most students (70%) are confident they will receive a high-paying job upon graduating, CUNA found. That indicates they are willing to pay the cost of college tuition even if they don't understand how the borrowing will affect their financial futures. Of the 847 17- and 18-year-olds polled nationally, 83% did not know the rates and 77% didn't know the duration of their expected or existing college loans.
"These troubling findings suggest not just a lack of awareness of college cost or how debt works but also a lack of basic financial knowledge," said Paul Gentile, CUNA executive vice president, strategic communications and engagement. "The results suggest that some students could be challenged in managing basic expenses or using such payment tools as credit cards in a consistently responsible manner as they enter adulthood."
Even if students relied on parents to arrange financing, it's still important for students themselves to have a basic understanding of the level and type of college debt they are taking on, Gentile added.
The findings are of particular concern, he said, because 74% of aspiring college attendees say they will need a combination of federal and private loans, family money and jobs to support their tuition. About 20% reported that family will pay their tuition outright, 5.8% will use federal loans and grants alone, and 2.01% will rely on private loans and grants.
Twenty-five percent expect to take out two or more student loans, while 13% expect one loan, and 60% couldn't estimate how many they would need.
Given the new reality of more loans at larger amounts for most borrowers, CUNA is lobbying the government to allow student loans of longer duration than the current 15-year standard.
"The 15-year standard student loan made sense in years past when the total debt taken out was much lower," Gentile said. "College is a lifetime investment. The value of a longer term is you can better structure the loan to allow for smaller payments in the early work years. That is typically when most borrowers struggle as their careers are just beginning. Once their careers pick up, they are better able to manage the debt, so a longer term helps marry up those two realities."
Of those who knew what they will owe after graduation, 15% said they will owe $10,000 or less; 22%, $11,000-$50,000; and 13%, more than $50,000.
Credit unions offer better interest terms due to their mutual, member-owned business model. Credit union private student loans also perform better than other student loans, with default rates at about 1.6%, compared with less than 6% for all private student loans and more than 12% for federal loans.