Imagine making one of the most expensive purchases of your life when you don’t fully understand the terms and true cost. And add to that scenario that you know that you are not alone because most of your peers are just as bewildered as you are.
That’s the painful reality for today’s high school students as they think about how they are going to pay for college.
We know this because we analyzed survey data for students in grades 11 and 12 who recently registered to take the ACT. What we found was that most students, across economic backgrounds and financial categories, have shockingly little knowledge of how the federal government helps students finance their postsecondary endeavors. As student debt climbs into the trillions of dollars, ensuring that young people fully understand the realities of paying for college – and what it means now and in the future – is critical to their economic health.
ACT researchers reached their conclusion by asking students several financial literacy questions, which revealed the following:
· An overwhelming majority (ranging from 73–81 percent across income groups) didn’t know that the government “subsidizes” a borrower by paying his or her interest on existing loans while the student is still in college. Those from the most well-off families performed the best on this question in relation to other income groups, but no one group showed proficiency with the question.
· A majority (67–70 percent across income groups) didn’t know that there is a student loan repayment option that allows students to repay student loans based on how much money they make in jobs after college.
The findings highlight an urgent need for more financial literacy for prospective students, especially considering the economic stakes at hand. We all need to commit to aiding students in understanding that education debt will affect their careers and future life choices.
