Students Demonstrate ‘Shockingly Low’ Knowledge of College Financial Aid as Student Debt Tops $1.5 Trillion

IOWA CITY, Iowa — June 26, 2019 — There is one unifying characteristic among college-bound high school students, no matter their economic background: They consider the price of college to be a very important factor in their decision-making, even those whose families are paying for their education and aren’t eligible for financial aid.

Yet despite this price sensitivity, most students, across economic backgrounds and financial categories, have a “shockingly low” knowledge of how the federal government helps with student loan repayments and subsidies. ACT’s Center for Equity in Learning, in partnership with ACT State and Federal Programs and ACT Research, found these results in its report “Dollars Rule Everything Around Me: College-Bound Students’ Views on Paying for College ” by analyzing survey data for approximately 1,200 students in grades 11 and 12 who recently registered to take the ACT® test.

One of the most complex and ambiguous aspects of the college search process is understanding the short- and long-term implications of student financial aid on decisions about postsecondary enrollment made by students and families. “In a time when college debt loads keep rising, it is critical that ACT play a strong role in capturing students’ voices and highlighting issues that impact their college success,” said Suzana Delanghe, Chief Commercial Officer of ACT.

Researchers reached their conclusion that there is a lack of understanding of student financial aid options and terms by asking financial literacy questions:

  • An overwhelming majority (ranging from 73–81 percent across income groups) didn’t know that the government “subsidizes” a borrower by paying his or her interest on existing loans while the student is still in college. Those from the most well-off families performed the best on the question in relation to other income groups, but no one group showed proficiency with the question.
  • A majority (67–70 percent across income groups) didn’t know that there is a student loan repayment option that allows students to repay student loans based on how much money they make in jobs after college.

“The findings highlight an urgent need for more financial literacy–specific interventions, especially in light of the economic stakes at hand,” said Jim Larimore, chief officer for ACT’s Center for Equity in Learning. “We are committed to helping students understand that this debt will affect their careers and other life choices. Most notably, 27 percent of African American students and 31 percent of those who are the first in their family to go to college anticipate paying for college without any family help; these are the two biggest groups who report such a high level of expecting to pay tuition without support, yet these are exactly the students who need the biggest boost.”

U.S. student loan debt now tops $1.5 trillion. The average borrower has accumulated almost $40,000 in student loan debt, which eclipses credit card debt and only trails home mortgage loans as the largest type of personal debt.

Findings Highlight Need for Solutions

The Center proposes the following ideas in its report:

  • Information tailored for different student groups: Where possible, a more nuanced view of high school students and their financial needs should be adopted.
  • Improved outreach by college representatives: Colleges need to improve their outreach to the students who could use their assistance and advice the most; without it, students may not have the most up-to-date, personalized or accurate information to make college enrollment and student financial aid decisions.
  • Additional information about financial literacy: Despite efforts to increase financial aid literacy, there remains an urgent need for more financial literacy–specific interventions. Further, debt-averse students may need additional information about the value of undertaking some (but not too much) debt, and the difference in types of debt.

The Center also believes college prep outreach programs, such as GEAR UP, Upward Bound and AVID, among others, could grow beyond that initial mission and become an extremely valuable financial information source for those who participate in them.

Students’ Financial Categories

Researchers recognize that students’ economic background may drive the results, so students were asked about the level of family contribution they expect to help them pay for college.

  • Family contribution, not debt averse and Pell Grant ineligible
  • Family contribution, not debt averse and Pell Grant eligible (meaning students whose self-reported family income was $60,000 or less)
  • Family contribution and debt averse
  • Student payer

One in five high school students expect to pay for college on their own and 68 percent have some type of price sensitivity (e.g., Pell Grant eligible, averse to student debt or self-funded).

About ACT’s Center for Equity in Learning

ACT’s Center for Equity in Learning focuses on closing gaps in equity, opportunity and achievement for underserved populations and working learners. Through purposeful investments, employee engagement, and thoughtful advocacy efforts, the Center supports innovative partnerships, actionable research, initiatives, campaigns, and programs to further ACT’s mission of helping people achieve education and workplace success.

About ACT’s State and Federal Programs

ACT State and Federal Programs, is dedicated to positioning ACT as a thought leader at the national and state levels to inform and influence education and workforce policymaking and is made up of four interrelated units staffed by experts in policy development, federal and state government relations, and outreach to states and national organizations. Together, State and Federal Programs provides insights and resources to states, workforce and education entities, and other organizations to help individuals navigate their education and career pathways.

About ACT Research

ACT Research leads the field with authority and high-quality scientific evidence in support of education and workforce practices, solutions, and services. Our mission-driven team comprises a variety of backgrounds and disciplines, and offers a wide spectrum of knowledge and skills, enabling us to deliver quality, high-impact products and services aligned to ACT’s strategy and mission. Together, our research teams provide policymakers, educators, parents, and learners with research-based insights to inform their decision-making, and deliver educators and workforce development professionals with tools and services needed for education and career navigation.