Report: Students Underestimate Average Loan Debt

The study -- compiled from data of a three-year analysis of graduating college students -- found an overwhelming majority of students who take out loans underestimate the total cost of their loans and overestimate their expected incomes.

According to the study, recent college graduates reported an expected income of $39,016, while the average income for college graduates is only $27,000.

Students also underestimated the total cost of their loans.

Seventy-eight percent of surveyed participants had underestimated their loans by at least $4,846.

Loan repayment also appeared to be a problem, as students in the study reported they contributed an average of 10.7 percent of their future income to loan repayment.

The loan industry recommends that students use no more than 8 percent of their income to repay loans.

Jennibeth Brackett, public relations coordinator for the N.C. State Education Assistance Authority, said the main problem comes from student ignorance on the totality of loans.

"We want to make sure students know to borrow just what they need," she said.

"The more you borrow, the more debt."

Deitrich Knabe, field organizer for NCPIRG said most students who take out loans are forced to because of tuition increases and society's demand for better educated workers.

"Tuition increases at a lot of schools make low-income students take out loans to pay for school, tuition, room and board -- the total education cost," he said.

UNC is in its first year of a two-year tuition increase approved by the Board of Governors last year. A percentage of the money raised from the increase is being siphoned to aid needy students.

Knabe also said interest rates hurt low income and first- and-second-year students who take out loans.

"The interest rates with loans are adding up really fast, and a lot of students are trapped with debt," he said. "Low-income students, especially first- and second-year students in college do not know about this. They don't have the sense to be frugal with loans."

But Shirley Ort, director of UNC's office of scholarships and student aid, said the number of students who take out loans at UNC is below the national average.

"On the national level, one-third of students receive grants, while two-thirds receive loans," she said.

"Here at Carolina, if they are needy and apply on time, two-thirds of students receive grants and one-third receives loans."

Ort also said Carolina's financial aid protects students against tuition increases.

"For every needy student, the university gives them an enhancement grant that takes care of that," she said.

"If students are borrowing more money, it is not because of that.

"They just don't comprehend that a loan is not free money, eventually it has to be paid back."

The State & National Editor can be

reached at stntdesk@unc.edu.