Students Lack Knowledge of Financial Aid Options

New survey suggests many don’t have a strong grasp of how federal student loans work
Students walking out of a building on campus

While the price of education is a deciding factor for most college-bound students, a new report suggests that these students often have little knowledge about federal government programs that can make paying for school easier.

ACT’s Center for Equity and Learning worked with state and federal partners to survey approximately 1,200 11th and 12th graders who were registered to take the ACT test in April 2018. The aim was to find out how they planned to pay for their education and see how knowledgeable they were about repayment options.

The study grouped the students into categories based on whether their family expected to contribute to their education, whether they would pay for college themselves, whether they were “debt-averse” (meaning they were keen to avoid any student loans) and whether they would qualify for a Pell Grant (meaning their self-reported family income was $60,000 or less).

Across all these categories, the cost of college was a major factor in choosing where to study. Students planning to fund their own education — referred to as “student payers” — expressed the most concern about price, with 80% saying it was a very important factor. In comparison to just 56% of students who expected a family contribution but weren’t debt-averse or eligible for Pell Grants saw price as “very important.”

Yet despite the high concern about price, many students had little knowledge about the financial options that could help them.

For example, most students did not know that federal student loans offer options that limit monthly payments to a portion of borrowers’ disposable incomes. When asked whether the federal government offered such income-driven repayment plans…

  • 33% of Pell Grant ineligible students knew that they did
  • 33% of Pell Grant eligible students knew that they did
  • 30% of debt-averse students knew that they did
  • 32% of student payers knew that they did

Most students also were also unaware that the federal government offers subsidized loans, paying the interest owed while students are in college or during their post-school grace periods. When asked whether the federal government offered subsidized loans…

  • 27% of Pell Grant ineligible students knew they did
  • 19% of Pell Grant eligible students knew they did
  • 20% of deb- averse students knew they did
  • 22% of student payers knew they did

When it comes to preparing for college, not only should students and their families be aware of the average costs to expect, but they should also understand how the various payment options work. Before taking out any student loans, do your research to make sure you know how federal student loans differ from private loans and what would be expected from you as a borrower. The more you know, the better financial decisions you’re likely to make.

Tamara E. Holmes

Tamara E. Holmes is a Washington, DC-based writer who covers personal finance, entrepreneurship and careers.

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