Variables Impacting Student Loan Knowledge

Abstract

Student loan debt has eclipsed auto and credit card debt; it is now the second largest category of household debt, only lagging behind mortgage debt. In August 2015, student loan debt in the U.S. ballooned to over $1.3 trillion. With default rates hovering around 14%, student loan debt has become a serious issue for many U.S. households. While a college degree remains valuable, tuition and fees continue to escalate. Many times, the decision to take on student debt is made by 18-year-old individuals, who might not fully comprehend the long-term ramifications of their decisions. The goal of this research is to determine whether any independent variables impact students’ knowledge of their loan situation and if students view their loans as investments. Student loan knowledge was gauged by whether students could identify their interest rate, starting salary, and debt burden. The five independent variables being explored are current employment, debt dependency, enrollment in a high school or college financial course, and budgeting. Data was acquired through a survey of 441 Ohio State students. Multivariate regressions and two-proportion Z-tests were run to determine if the different independent variables contribute to greater student loan knowledge. The research concludes current employment has the greatest effect on whether students know their loan situation. This research provides insights into why some students are more knowledgeable about their student loans and opens the discussion about what can be done to educate the high school graduates making the student loan decision.