We’ve all had that thought: “If I knew then what I know now…” If only all the facts had been available to me before I’d made those important life decisions, we think to ourselves, things might have gone differently!
It turns out that’s a sentiment shared by many U.S. student loan borrowers. According to research sponsored by federal student loan guarantor American Student Assistance® and conducted by Drs. Margaret Platt Jendrek and Jean M. Lynch, sociologists at Miami University in Ohio, a majority of student borrowers surveyed displayed only a limited understanding of their loan obligations, and these borrowers left school feeling poorly equipped to manage their repayment.

Most telling, a majority of those surveyed agreed with the statement, “When I borrowed money to complete my undergraduate degree, I had only a vague idea about the amount of debt I was incurring.”

In other words, if they’d known what they were getting into, these student borrowers might have made different choices.

It’s a worrisome finding. After all, financial aid professionals strive to provide students with loans and other aid to enable students’ educational dreams, not pull the wool over their eyes. Yet ASA’s research shows that a clear disparity exists between the amount of financial literacy education student borrowers receive—and what they feel they need. And such a disparity may have long-term consequences for schools as well as borrowers.

For instance, the ASA study found that, with the benefit of hindsight, most student borrowers in repayment surveyed felt that “students who borrow money should receive financial counseling” and “college students should receive more information about loan repayments.” When asked, borrowers said they looked to their schools, or to school-appointed representatives, as the source for this information.

Not surprisingly, borrowers’ negative feelings about the amount and quality of financial literacy education they received as undergraduates had a lasting influence on their emotions toward their alma maters. ASA’s study found a direct correlation between these students’ impressions of their schools’ effectiveness in financial literacy training and the students’ likelihood to contribute to their alma maters as alumni. In other words, students who felt left in the lurch with their loan obligations were less likely to retain positive feelings toward their schools and to become active members of the alumni community.

So what are schools, and concerned financial aid professionals, to do? Nonprofit guarantors should be part of the answer.

Since the federal student aid program is primarily made up of loans, versus grants, scholarships and work-study, the federal government, and the entire financial aid community, has an obligation to ensure that students receive debt management training exists. As impartial organizations that interact with borrowers throughout the life of the loan, guarantors should play a crucial role in guiding students and parents through the lending process with the support and knowledge they need.

Unfortunately, the very programs that aim to provide student borrowers with financial literacy education may be at risk. Despite proven results in default prevention, the Department of Education recently moved to cancel, effective January 2008, the Voluntary Flexible Agreements that allow guarantors like ASA to focus on delinquency and default prevention instead of loan collection. The good news is that efforts are underway in Congress to protect these VFAs.

The one certainty is that the entire aid community –government, schools, lenders and guarantors – will have to work together to solve the financial literacy gap that threatens both healthy loan repayment and the engagement of alumni in years to come.

To learn more about this research, please contact your ASA representative, Caroline Menendez.