I Judged Student-Loan Borrowers … Until I Became One

If loan dollars are to flow, borrowers should be made to understand the terms.

Student loans have been at the forefront of higher-education policy discussions for quite some time. The recent actions taken by the Biden Administration on student-loan forgiveness have made the issue all the more prevalent. One of the key arguments of those who favor forgiveness is that students didn’t know what they were getting themselves into when they signed up for huge loans. While I don’t entirely buy that argument, my own experience with student loans suggests that it has a surprising amount of credence.

According to a survey conducted by the Brookings Institution, only 52 percent of surveyed students could accurately identify, within a $5,000 range, what they paid for their first year of college. According to the same survey, only 30 percent of first-year students were able to estimate their student-loan balance within 20 percent. In fact, 28 percent of first-year students weren’t even aware they had federal student loans to begin with.

Only 52 percent of surveyed students could identify what they paid for their first year of college.Similarly, a Business Insider survey found that 29 percent of student-loan borrowers say they either didn’t understand the terms and policies of their loans at all, or didn’t understand them well.

It is easy for an outside observer to balk at these surveys. The concept of student loans is simple: You receive money to go to school, and when you graduate you have to pay it back. I was among those who scoffed at the suggestion that students didn’t know what they were getting themselves into when they took out loans.

But now that I have gone through the experience of taking them out myself, I am shocked to see just how easy it is to receive the money and how hard it is to get the details.

For my undergraduate education, I worked through school and graduated without any debt. But now that I am pursuing an MBA, I have taken out student loans. This experience has been frustrating and enlightening. Unlike me, most student-loan borrowers are not taking out loans for the first time after getting a degree in accounting and working in the financial world, but that unorthodox sequencing has given me a unique insight into how student loans work—and how they don’t.

One would think that, in the case of a loan for tens of thousands of dollars, the details would be abundantly clear. The repayment period, the interest rate, the origination fees, and other details are obviously important when ones borrows a large sum of money. But little of that information was easily available on either my university’s website or on the website of the Department of Education.

I am not new to the world of finance. I am a Certified Public Accountant (CPA) and am intimately familiar with how loans work. Still, it was difficult for me to understand exactly how the student loans I took out would work. Ultimately, I was able to find the information I needed, because I knew exactly what to look for and all of the financial jargon that went along with it. Nevertheless, it was concerning that I had to rely on professional experience to find basic information about loans that are readily offered to incoming freshmen, or basically anyone else with a pulse.

I had to rely on professional experience to understand loans that are readily offered to incoming freshmen.When one takes out student loans, the Department of Education requires Student Loan Entrance Counseling, but this education is lacking. It provides basic information about what an origination fee is, the maximum amount a student can take out, what the school will cost, et cetera. But the information provided is limited and brief and hardly amounts to more than a PowerPoint presentation. Furthermore, the counseling is required only once, when a student takes out his or her first loan. An undergraduate could take the counseling once in his freshman year and be good to go for the rest of his academic career. Never mind that a student in his senior year of college will remember his origination fee about as well as he remembers freshman orientation. A click of a mouse, and the money keeps flowing.

Beyond this counseling, very little information was made clear to me about the basic facts of my loans. While entering my second semester and attempting to refresh myself about the details, I was unable even to find the information on my school’s financial portal or the Department of Education’s website. I had to go to outside sources even to find out what the interest rate on my loans would be.

If a financial professional pursuing a master’s degree in business has difficulty finding information, how can we possibly expect an 18-year-old, who likely does not even know what an origination fee is, to know what information to gather about his or her loan?

Student loans ought to take a page from the mortgage industry’s playbook. Disclosures are the name of the game when one gets a mortgage. It is made painfully clear to borrowers exactly what their interest rate will be, and borrowers also receive an itemization of all the lender’s fees, an amortization schedule, information about the repayment period, and an estimate of the monthly payment. The student-loan industry, alarmingly, does very few of these things. It is far too easy to jump head-first into five or six figures of debt and hardly know how it happened.

The Department of Education is on the right track with requiring student-loan counseling, but the actual education provided could be significantly improved.

For starters, a one-time, 20-30-minute presentation on a debt that can follow you for your entire life, even into bankruptcy, is insufficient. To allow a student to take out student loans without knowing the ins and outs of those loans is nonsensical. I have been through multiple mortgages; the mortgage company does not rely on the fact that the information was disclosed to me last time. Thus, at the very least, student-loan counseling should be required each time a loan is originated, or annually.

Loan counseling should include information on the prospective salaries of graduates.Additionally, much more specific information should be provided: The loan counseling should also include information on the prospective salaries of graduates with similar degrees, employment rates, and other important details that many colleges completely overlook. Even return-on-investment of degrees could be covered. Overall, the provided education should give students a full picture of the true financial burden they are accepting. The mortgage industry offers far more robust education and disclosures, and it caters to those with established job histories, established credit scores, and other important financial experiences. The student-loan industry caters to most anyone over the age of 18 who is enrolled at a postsecondary institution, and its education and disclosures are weak, to say the least.

Ultimately, the argument about student loans is nuanced. The underlying principle is true for any loan: If you borrow money, you have to pay it back. This has been the case for thousands of years, and there is little reason to change it now. But it is a mistake to overlook the argument that many student-loan borrowers don’t understand the breadth of what they’re doing. Many of those opposed to forgiveness laugh at those who say they didn’t know what they were getting into, but I am here to say that their argument has validity. When we are giving 18-year-olds access to tens of thousands of dollars with scant information about the details, we should not be surprised when student-loan forgiveness is the result.

Joseph Warta is a tax accountant in Raleigh, N.C., and a former Martin Center intern. He is a graduate of Wake Tech Community College and Western Governors University and a current MBA student at Campbell University.