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Financial aid and student debt is a confusing topic for most Americans. The jargon can be difficult with words like forbearance and acronyms like FAFSA. And, with little in terms of financial education, many students and their families just don’t know where to get started. In our research we’ve found that both high school students and college students struggle to understand the most basic financial aid topics. But at the same time, these students are leaving campus with an average of $28,400 in student debt.
Last year, we found that 85% of college students rely on their parents for financial aid and student loan information. Despite all of this help from their parents, students are still uninformed and struggling.
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This month, we decided to conduct a survey of 1,001 parents to see what they knew about the financial aid process and student debt. We surveyed parents who had at least one child currently in 11th or 12th grade or currently in college. In other words, we surveyed parents who should be familiar with the financial aid and student loan process.
In short, we confirmed that students rely on their parents for financial aid information. And, we found that parents know very little about student loans. Parents don’t understand student debt and consequently neither do their children.
The full results of our survey are quite interesting. In total, we asked respondents 17 questions related to financial aid and student debt. We hope that you read our entire survey and the Observations & Analysis section at the end of this report.
LendEDU’s Parents & Student Debt Survey 2017
1. Does your son or daughter rely on you for financial aid and/or student loan information?
74.03% of parents reported that their son or daughter relies on them for financial aid and student loan information.
2. Have you heard of the FAFSA?
75.12% of parents have heard of the acronym FAFSA.
3. Do you know what FAFSA stands for?
14.69% of parents could correctly identify what the acronym FAFSA stands for.
4. Do you know the difference between subsidized and unsubsidized student loans?
55.74% of parents know the difference between subsidized and unsubsidized student loans.
5. What is the current interest rate on new undergraduate federal subsidized and unsubsidized student loans?
35.76% of parents could correctly identify the current interest rates within 50 basis points.
6. Do you know the current repayment term of a federal student loan?
40.06% of parents could correctly identify the current repayment term.
7. Do you know the major differences between private and federal student loans?
51.55% of parents could correctly identify the major differences between private and federal student loans.
8. Do you believe that your son or daughter would qualify for a private student loan without a cosigner?
34.57% of parents believe that their child would qualify for a private student loan without a cosigner. (False!)
9. Do private student loans accumulate interest during deferment?
67.13% of parents knew that private student loans accumulate interest during deferment.
10. How much student loan debt do you anticipate your son or daughter will graduate with?
On average, parents estimated that their child would graduate with $28,480 in student loan debt. This was remarkably close to the actual average of $28,400.
11. Is it possible to refinance student loan debt with the federal government?
58.34% of parents believe that you can refinance student loan debt through the Department of Education. (False!)
12. Do you believe that your son or daughter will be helped by federal student loan forgiveness programs after graduation?
47.65% of parents believe that their child will be helped by federal student loan forgiveness programs after graduation. (False!)
13. Can parent PLUS loans be directly transferred to your son or daughter after graduation?
40.46% of parents believe that PLUS Loans can be transferred to their child after graduation. (False!)
14. Do subsidized student loans accumulate interest during deferment?
46.55% of parents knew that subsidized loans do not accumulate interest during deferment.
15. Do unsubsidized student loans accumulate interest during deferment?
59.24% of parents knew that unsubsidized loans accumulate interest during deferment.
16. Do you know the current federal student loan borrowing limits?
15.98% of parents could correctly identify the current federal student loan borrowing limits.
17. Do you know the basic risks of acting as a cosigner on a private student loan?
72.43% of parents know the basic risks of acting as a cosigner on a private student loan.
Our Observations & Analysis
Parents are Expecting Student Loan Forgiveness
Student loan forgiveness is one of the most reported topics in the student loan industry. Unfortunately, the promise of student loan forgiveness has become pitch for unethical call centers and scams. In our survey, we found that 47.65% of parents expect their children to be helped by federal student loan forgiveness programs after graduation. This optimism may be contributing to over borrowing and unrealistic repayment expectations.
When President Obama signed Public Service Loan Forgiveness into law, the dream of forgiveness was born. In fact, every month there are roughly 200,000 searches for student loan forgiveness on Google’s search engine. But in reality, forgiveness is a very unlikely result for the majority of student loan borrowers. The forgiveness myth and scam has gotten so bad that Facebook completely banned most student loan related ads.
Parents are overly optimistic when it comes to forgiveness. And, it is likely that their optimism is being passed to the primary borrower – the student.
Parents Don’t Understand Federal Student Loans or Private Student Loans
In order to efficiently repay student debt you need to understand the costs. In our study, we found that many parents don’t understand the costs of federal student debt nor private student debt. We found that 64.24% of parents don’t know the current student loan interest rates on new federal student loans. Also, we found that 40.76% of parents believe that unsubsidized student loans do not accumulate interest during periods of deferment (this is false).
We found that 48.45% of parents don’t know the major differences between private and federal student loans. In fact, 32.87% of parents did not know that private student loans accumulate interest during periods of deferment (this is false).
We were happy to see that 72.43% of parents claimed to know the risks of acting as a cosigner. However, we were surprised to see that 34.57% of parents believed that their child would qualify for a private student loan without a cosigner. In reality, only about 10% of private student loan borrowers qualify without a cosigner. We routinely see panicking parents with students unable to qualify for private education loans when it is too late.
Many parents do not understand the basics of student loan borrowing. How can we expect graduates to efficiently repay student debt when passed the wrong information by their parents?
Parents Don’t Understand PLUS Loan Obligations
In our survey, we found that 40.36% of parents believed that the Department of Education allows parents to transfer PLUS Loans to the child after graduation. However, PLUS cannot be transferred to the child. The parent borrower is legally responsible for repaying the loan. The only way PLUS Loans can be transferred to the students is through refinancing and consolidation with a private lender.
>> Read More: Refinance Parent PLUS Loans
The CFPB recently reported that the number of older Americans with student debt has quadrupled and the amount of debt per senior borrower has doubled in the last decade. And, nearly 40 percent of federal student loan borrowers age 65 and older were in default.
The results of our study show that parents may be over borrowing with PLUS Loans without fully understanding the loan obligations. The end result: difficult and unexpected repayment for parents using PLUS Loans.
Parents are Expecting Federal Student Loan Refinancing
Federal student loan refinancing has been a popular pitch from politicians – mostly notably Senator Elizabeth Warren. In our study, we found that 58.34% of parents believe that that it is possible to refinance student loan debt with the federal government. In fact, you cannot refinance student debt with the federal government. Currently, only private companies will refinance student loans. Today, an applicant must have great credit and high income to qualify for ideal terms in a student loan refinancing application.
Again, parents are overly optimistic when it comes to student loan repayment. And, we believe that it is likely that their optimism is being passed to the primary borrowers – the students.
Conclusion & Methodology
Student debt is a $1.3 trillion problem impacting more than 43 million Americans. Student debt isn’t evil. In fact, student debt is a powerful tool when used correctly. We hope the results of this study inspire educators, lawmakers, and parents to think about financial literacy.
We started LendEDU to create transparency in the student loan market.
We believe that transparency comes in two parts:
1. Financial literacy
2. Price transparency
At LendEDU, we work to promote financial literacy through tools like our text-in financial aid hotline. We work to help graduates make smart borrowing decisions through interest and prepayment calculators. And we work to provide price transparency in our marketplace.
The responses to our survey were collected from January 13th to January 15th 2017. We used Pollfish to administer the survey online. We asked parents to answer our questions honestly and to the best of their knowledge.
51.55% of parents had a child in 11th or 12th grade. 48.95% of parents had a child currently in college.
See more of LendEDU’s Research
Author: Dave Rathmanner