Half of students said they didn't believe they could ever pay down their student loans.

Most college students take out school loans without understanding the differences between federal and private loans or the risks of variable interest rates, and the ease of online loan application forms has exacerbated misunderstandings that tack on years of repayments.

About two-thirds of college students don’t understand the basic differences between  federally-backed student loans – which usually have lower and more stable interest rates – and private school loans that often have wildly fluctuating interest rates once students begin repayment, according to findings in a survey conducted by NERA Economic Consulting and Young Invincibles, a student advocacy group based in Washington, D.C.

Common misconceptions about student loan options aren’t a result of lazy Google searches, wayward clicks, and deceptive sales pitches from banks and companies hawking private loans.

Eight in 10 student respondents said they talked with counselors or consulted their school’s website before signing up for a student loan, according to the survey, “High Debt, Low Information.”

The availability of online application forms that can be completed by a prospective college student in a matter of minutes has made it easier to sign up for massive loans that are often subject to market fluctuations and include steep late fee penalties.

“I really had no idea what I was getting into. I never had an exit interview when I graduated. So I had no clue,” a student borrower who owed $96,000 in student loans said in response to the Young Invincibles survey. “All of my loan documents were filled out online, I never spoke with a person. I just clicked buttons, got approved, and money showed up in my account. The monthly payment amount they expected from me was a surprise and completely unrealistic.”

The Young Invincibles survey did not include the names of student respondents.

A website called Student Loan Marketplace – made for students at private, nonprofit colleges — was created in 2010 after national research showed students who find loans through haphazard online searches would most likely face higher interest rates than students who find the same loan through their college or university.

“Students can be misled about a certain loan being the best option for them,” said Tina Bjarekull, president of the Maryland Independent College and University Association (MICUA), which has its own site that includes local lenders. “They go through the frustration of finding the right loan for them and applying, and then they give up and just take what they can get.”

Student loan debt stands at almost $1 trillion, and for the first time is larger than credit card and housing debt.

Fifteen percent of students who responded to the Young Invincibles survey said they didn’t know loans that tack on interest would lead to payments beyond the original loan amount.

“I didn’t understand it at all,” said a student who owed $70,000. I figured that if I borrowed $10,000, then I’d have $10k to pay back later, and all I’d have to do is be frugal for a few years after I got a job to pay things back. I had no idea how much interest was bound to accrue over time. By the time I did understand it, I had racked up quite a lot of loans.”

More than half of college students said they didn’t think they could ever pay off their student loans. A student quoted in the survey said it was several years before he realized that submitting loan repayments well beyond the minimum amount would be the only way to pay down a loan quickly.

“Even when student loan borrowers understand the terms and conditions of their loan agreements on the surface, it is clearly difficult for some to process the whole picture,” the survey said. “On the one hand, they are acutely aware of the importance of obtaining a college degree, but on the other, it is difficult to anticipate what impact student debt will have on their lives after graduation, particularly in a difficult economy.”

Many survey respondents who took out federal loans said they understood the complexities of the loan application and repayment process before they gave their final approval. About one-fourth of students said they understood some part of the student lending process.


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