This year, the United States reached a record-breaking high for student loan debt, with 45 million borrowers owing a combined grand total of more than $1.56 trillion. While education costs are on the rise, it’s also important to understand how educated students are about student loans and how to borrow responsibly.
College Finance recently conducted a survey with more than 1,000 college graduates across the country to better understand the disbursement of their student loans, how these funds were spent, and whether students had any loan-related regrets.
This survey surfaced some interesting insights, which we’ve identified below.
Residual Funds – How They’re Spent and Student Regrets
Many students who apply for loans receive more aid than they actually need to pay for their tuition. The balance of the money needed versus the loan amount can be handled in three different ways: Students can keep all residual funds, return unused funds, or keep a balance and return a portion of the money.
Sixty percent of the graduates surveyed received residual funds. Of these respondents, 63% decided to keep all of their residual funds, while only 15% returned all of the excess funds. Eighty percent of the respondents who kept all of their funds believed it was necessary in order to survive financially, and 60% stated that keeping the funds was a good idea.
On the flip side, 50% of those who spent their residual funds on essentials like housing or food later regretted this decision. Seventy-nine percent of those who spent their excess funds on nonessentials ended up regretting the decision.
How Much Residual Money Was Kept and Spent?
College Finance found that students spent an average of $1,588 in residual funds on essentials and nonessentials. Housing was the primary expense for which students used these funds, spending an average of $3,405 on this category from their residual funds.
Instead of using student credit cards or another form of lower interest payment methods, $2,062 in residual funds was spent on additional education expenses, and $1,610 was spent on phones and phone plans.
Of those who received residual funds, 69% worried about how this decision could impact their future at a later time. Half of the respondents did not think carefully about this decision and felt that they were already borrowing so much money that keeping the residuals wouldn’t impact their finances drastically.
Knowledge of Student Loans (by GPA)
Lastly, students were polled on their knowledge of how student loans work and their answers were split into two categories: respondents with above-average GPAs and those with below-average GPAs.
Those with below-average GPAs were less likely to understand how interest is calculated, how to find the total cost of loans (including interest), how minimum monthly payments work, and how student debt can affect a financial future.
Graduates’ Outlooks on Their Financial Future
Despite regrets about residual funds and potentially feeling underprepared for managing student loans, respondents had a positive outlook on their financial futures. Seventy-three percent of respondents believe they’ll be able to pay their student loans in full.
While 63% agree with universal student loan forgiveness ideas, only 23% believe the government will enact this plan, and only 19% of graduates do not think they’ll have to pay back their full loan amounts.
Student debt is a serious issue impacting this country. What’s even more startling is that most recent graduates did not seem to be prepared and knowledgeable about how student loans work and how residual funds can impact their loans in the long run.
While the debt crisis must still be addressed nationwide, a focus on better educational and planning tools to help students make more informed decisions about loans could help reduce a fair amount of this debt in the future.
Rajhu S Goraai is a Passionate Stock and Commodity Researcher. Travel addict and Photographer. Owner at Leading Business Blog.