Should Colleges Warn Students About Higher Education Debt?

Posted on June 1, 2016 at 12:00pm by
Student debt defaults are on the rise.

A recent article published in Bloomberg suggested one in five students graduating in 2016 have used higher education loans to pay for vacations, eating out at restaurants and other forms of entertainment. In other words, these students are using educational loans for non-educational purposes.

Another article published by Bloomberg claimed 15 percent of surveyed students were unaware of their loan balances and another 59 percent did not know when their debt would be paid off.

Is it possible some students are also unaware of the consequences of accumulating excessive student loan debt? If so, should universities adopt freshmen orientation courses or provide materials that educate students on the responsible use of higher education debt?

What Happens When Students Are Warned About Higher Education Debt?

An article published by PBS argued students would be cautious with borrowing if they were aware of the potential consequences of excessive debt. This assumption may be correct.

In 2012, Indiana University began sending out warning letters to students that help estimate future debts and monthly payments. As of 2016, student loan borrowing by undergraduates has dropped by 18 percent. Indiana lawmakers were impressed by the results at Indiana University and passed legislation requiring all colleges accepting state aid to send similar letters. Students at Indiana University have claimed they spent more hours working and looking for scholarships after receiving the warning letters.

While this is ‘possibly’ exciting news, Indiana University will have to sort through statistics it has collected to discover an actual relationship between sending warning letters to students and a decrease in borrowing. However, Montana State University has an identical policy and has achieved similar results.

Let us say hypothetically that the drop in student loan borrowing has a significant relationship with warning students about possible consequences of debt. Some universities may not want to adopt this policy due to financial reasons. We have stated in a previous blog that high school students could be taught personal finance skills, which could include tools for calculating future debts and payments. This option could be a way to bypass universities who are dependent on students taking out excessive loans.

The Kansas City bankruptcy attorneys at The Sader Law Firm can help students struggling with loans manage their higher education debt.