The following research papers discuss the need for information and education for student loan borrowers. Practitioners can help provide education and guidance to college students and student loan borrowers.

“What are Student Loan Borrowers Thinking? Insights From Focus Groups on College Selection and Student Loan Decision Making” by C. L. Johnson, B. O’Neill, S. Lokken Worthy, J. M. Lown, and C. F. Bowen (Journal of Financial Counseling and Planning, 2016)

This study used data from online focus groups to understand college students’ decision-making process when borrowing money to finance their education. Respondents were asked eight questions regarding their college selection and student loan decision-making. Results suggest that (a) students relied heavily on advice from parents, guidance counselors, and friends; (b) attending college was not possible without student loans; and (c) students knew very little about the loans they would be responsible for repaying.

The collected qualitative data from 88 respondents paints a picture of students who felt they had no other choice but to borrow money to invest in their human capital to secure a better future. Financial educators and counselors should help student loan borrowers make informed decisions about education and debt. The authors determined the following areas to be important for practitioners: simplify student loan decisions; provide “reputation resources”; increase loan repayment awareness; increase online student loan resource awareness; address the social and emotional impacts of student loans; explore cost reduction alternatives; explore differentiation techniques based on learning styles; discourage frivolous spending of student loan refunds; explore graduate school funding resources; and encourage immediate savings.

“Promoting Active Choice Among High-Risk Borrowers: Evidence from a Student Loan  Counseling Experiment” by A. Barr, K. Bird, and B. L. Castleman (EdPolicyWorks Working Paper, 2017)

An experiment was conducted to evaluate the impact of a text messaging campaign that prompted loan applicants at a large community college to make informed and active borrowing decisions. Starting in December 2014 and continuing until December 2015, the researchers randomly assigned weekly waves of loan applicants to receive these texts, leading to an experimental group of 2,876 loan applicants.

Student responses to a post-intervention survey suggest that the intervention provided new information and helped borrowers to think clearly about their borrowing decisions. It was found that the text campaign led to declines in student borrowing. Students who received the texts were 3.1 percentage points less likely to borrow an unsubsidized Stafford loan, relative to a control group mean of 68 percent, and on average borrowed $90 less (5.3 percent) in unsubsidized Stafford loans than their control group counterparts during the semester of the intervention. The average reductions in borrowing were substantially larger ($242 or 14 percent) for individuals who received the messages prior to the priority filing deadline for financial aid. The largest impacts of the intervention were for students who had high accumulated debt levels prior to the messaging campaign; treated students borrowed $359 less on average in unsubsidized Stafford loans

“Do You Know What You Owe? Students’ Understanding of Their Student Loans” by E. A. Andruska, J. M. Hogarth, C. Needles Fletcher, G. R. Forbes, and D. R. Wohlgemuth (Journal of Student Financial Aid, 2014)

The purpose of this study was to determine if students were “loan confused” (knew whether they had any student loans) and/or “debt confused” (whether students knew how much they owed). The study combined self-reported survey data with administrative data from Iowa State University. The sample consisted of 486 U.S. citizen traditional undergraduate students between the ages of 18 and 24.

About 13 percent of students reported they did not borrow a student loan, when in fact they did. Students who are deemed “financially independent” by the Office of Student Financial Aid, meaning they do not have financial support from a parent or other legal guardian, were less likely to be confused about whether they owed any money. Nearly two-fifths (37.4% (28.3% + 9.1%)) of students underestimated the amount of student loan debt they owed (i.e. they were “somewhat” or “more” debt confused). Nearly one out of 10 (9.1 percent) underestimated their debt by more than $10,000.

The researchers offered a conclusion of having on-going financial counseling available to students and to provide some type of exit counseling so that students can adjust their expectations for both current and future lifestyles. The findings suggest that annual reviews of student loan indebtedness should focus not only on a student’s current year aid package, but also emphasize cumulative debt.

Carrie L. Johnson, AFC®, Ph.D. earned her B.S. in English for Information Systems from Dakota State University in Madison and her M.S. in Family and Consumer Sciences from South Dakota State University in Brookings. She earned her Ph.D. in Family and Consumer Science Education from Iowa State University in Ames.

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