As many high school seniors decide in the next couple of months what college they will attend, most will be flying blind about what their decision will cost them next year or 10 years later.
Despite all the hand wringing about runaway college costs, and the burden of $1.2 trillion of student debt on people trying to build a future, about half of college freshmen don't know what they've borrowed. And 28 percent with federal student loans don't even know they have those loans, according to a study by Brookings Institution researchers Elizabeth Akers and Matthew Chingos.
Their study of college freshmen points to a major reason Americans are fretting over student loans: Students are taking on debt blindly and find out when it's too late what they've done and the pressure it imposes on their lives. About 62 percent of freshmen studied couldn't estimate their loans.
Without realizing the cost of college, too many stay in college for six years — not realizing what two extra years will cost them. Others start school, run up debt and then quit before getting the degree or certificate that will pay the bills and the student loans. Many pursue majors that won't end up in jobs paying salaries high enough to cover the debt.
And after leaving or finishing college, young adults may live in fear, worrying how they will cover loans if the job they envisioned doesn't materialize or if they end up getting laid off. Rather than choosing the job they really want, some will settle for less than their dream to get a paycheck substantial enough for the loans.
"Many students look back on their educational experiences with some regret about the financial circumstances," Akers and Chingos said in a report on their study.
Instead of thinking about how much they will owe after college and making sure their debts will be manageable later in life, most high school juniors and seniors focus on the college they think they will most enjoy. A rule of thumb suggests keeping student loan monthly payments to 8 percent of likely monthly income. Calculate monthly payments at tinyurl.com/collegeloancalc.
Ignorance about costs also misleads low- and middle-income students when they're deciding on college. The College Board found that 60 percent pass up the opportunity to attend quality colleges they think are too expensive. They don't realize that financial aid often makes top-quality colleges more affordable than seemingly cheaper choices. Savvy college shoppers, with low incomes, don't pay sticker prices at expensive public or private colleges. To understand what you might pay, try an "expected family contribution" calculator such as tinyurl.com/familycontcalc. Use the federal formula for a sense of what you'd pay for a public college, and "institutional" for a private college.
In an attempt to help families make wise choices about costs, the federal government now requires colleges to feature calculators on websites that show what each college will cost after figuring in a family's ability to pay. But the net price calculators too often are difficult to find on college websites or too complicated to use, Akers and Chingos said.
The researchers suggest it would be in the interest of colleges to show students clearly what their costs will be. The shock of college costs is stoking complaints about college and making it more difficult to recruit students as they ask, "Is college worth it?"
It appears from the research that affluent parents might be handling the college money decisions while leaving their children in the dark. The result, according to the researchers, can be that students finish college and are shocked by loans they hadn't expected.
Only about half of freshmen attending a selective public university could correctly identify the cost of their education and living expenses at the end of their first year of enrollment, the researchers said. They gave students credit for a correct response if it was within $5,000 of the actual cost. Half of students underestimated how much student debt they had. And 14 percent didn't know they had any student debt even when they did have it. Seventeen percent overestimated what college was costing them.
There seemed to be no difference in awareness based on gender, race or income, but older students and those attending community colleges were more aware of the costs.
Gail MarksJarvis is a personal finance columnist for the Chicago Tribune and author of "Saving for Retirement Without Living Like a Pauper or Winning the Lottery."