Game of Loans: The Rhetoric and Reality of Student Debt by Beth Akers & Matthew M. Chingos

Author:Beth Akers & Matthew M. Chingos
Language: eng
Format: mobi
Tags: Educational Policy & Reform, Finance, Aims & Objectives, General, Education, Business & Economics, Higher
ISBN: 9780691181103
Publisher: Princeton University Press
Published: 2018-05-29T04:00:00+00:00

Source: SCHEV (labor market outcomes) and IPEDS (graduation rates).

Notes: Graduation rates are for class of first-time, full-time freshmen (all majors) who started at the institution in 2007–08. Labor market outcomes are averaged across all students who graduated between 2005–06 and 2009–10 with a bachelor’s degree in “Business Administration and Management, General.” Average wages are for the subset of graduates who were working full-time in Virginia.

Virginia is not the only state that has assembled data on the economic success of college graduates. Arkansas, Colorado, Florida, Tennessee, and Texas have also made data available.11 But in the other states, students who want to know how much they can expect to make if they successfully complete a given program of study are left to take a wild guess and hope for the best. That’s no way to make one of the most consequential financial decisions of one’s life.

It’s clear that a lack of information has severely compromised students’ ability to make smart college-going and borrowing decisions. Students haven’t been able to make cost-benefit calculations with non-existent information on benefits and difficult-to-obtain information on costs. But as more information becomes available, will it be enough to solve the broader decision-making problem? The available evidence from education and other fields indicates that individuals too often do not understand, much less make use of, the information that is available to them. This means that simply providing more information to students is unlikely to change their behavior.12

A compelling piece of evidence of this problem comes from a nationally representative survey of first-year college students who took out federal loans to attend college. A surprisingly large fraction of these students were unaware of how much they borrowed when asked less than a year after they signed the promissory notes for their loans. Barely one-quarter of students could report their total borrowing within 10 percent of the correct amount. About half underestimated their debt by more than 10 percent, with the remaining quarter overestimating their debt. Figure 6.2 shows that this lack of knowledge of amounts borrowed persists across all sectors of higher education.

Perhaps the most dramatic finding from this survey is how many students who took out federal loans do not even understand that they have loans from the federal government. Fully 28 percent of first-year students with federal loans reported that they did not have any federal debt, and 14 percent of borrowers said that they did not have any debt at all. In a more limited dataset from a single institution, students were also often unaware of the price they (and their families) were paying for college.13

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