February 3, 2016—Economics is hard, unless you’re a libertarian. For millennials in general, however, economics is extra hard. That’s probably why they have such a hard time understanding the education market and why they have debt. But what about contracts? How hard is the concept and why are they often so shocked they are in the red the moment they leave college?
According to Bloomberg, millennials are not familiar with what their loan contracts are spelling out, putting them in an odd situation the moment they are done with school.
The report is based on a study suggesting that people in debt thanks to their college education are unaware of basic facts about their student loans.
“The survey, conducted in January by Lendedu, a company that provides information about loan refinancing options, adds to a growing body of research into the widespread ignorance among young people about debt that could follow them to their graves.
When Lendedu talked to 477 undergraduate and graduate students at three Bay Area campuses, it found that just 6 percent of them knew how long they would be repaying the debt. Only 8 percent knew the interest rate on their loan. (That could explain why loan collectors, such as Nelnet, need to broadcast on Twitter that federal loan interest rates are set by the government.)
More than 90 percent of the students did not know which type of loans accumulate interest during school and which do not. Seventy three percent thought that Sallie Mae, which for years collected federal student debt, was a person rather than a company.”
According to the Lendedu survey, millennials are also clueless when it comes to other Americans and their student debt. At least 59 percent of survey participants claimed that the total outstanding student debt in the country was in the “millions,” when in reality, Americans hold about $1.3 trillion in student debt.
The Lendedu survey is the latest example of studies that prove that young people aren’t familiar with their own finances. According to a survey carried out by Brookings in 2014, only 38 percent of the undergraduates with student loan debt who participated knew how much they had borrowed. Twenty-eight percent overestimated their debt, while 19 percent did the very opposite. Brookings reported that 52 percent of students were at least aware of how much their schools charged them for tuition and room and board.
At the time, the Brookings report warned that the “lack of literacy about the personal finances of college going is almost certainly leading some students into decisions that they later come to regret.” Without basic financial knowledge, students may find it hard to choose the career that makes sense to them. In addition, lack of basic knowledge regarding their loans and economics breeds more bad deals, and students become unaware of how much they will have to work and save to repay the money they owe taxpayers.
Another survey by the Federal Reserve Bank of New York from June 2014 showed that millennials are also generally unaware of what the government can do to them if they fail to pay loans back.
At the time, 37 percent of respondents knew that declaring bankruptcy wouldn’t necessarily mean they would get rid of student loans while only 28 percent of student debtors knew that their wages, Social Security payments, and tax refunds could be affected if they stop loan payments.
Is the government partially to blame for the amount of student loan in America? Share your thoughts with us!