Many college freshmen arriving on campus this month have no idea how big of a bill they will be footing when they finish up their first year of school.
And the consequences for students who don’t know what they’re paying each year, whether up front or with loans, could last long after they graduate, experts say.
Megan Healy just began a five-year program in special education at the State University of New York at Plattsburgh. Healy, 17, was advised to get ahead by taking summer classes so she could earn her master's degree in five years instead of six.
The rigorous course load will save her money, but she isn't sure how much, because she doesn't know what each year costs to begin with. Healy knows she has two loans, but said her father crunched all the numbers for her.
“I wish I could tell you, but I really have no idea,” Healy said. “My dad does all that stuff.”
Healy isn't alone. A Brookings Institute study published in December 2014 called “Are College Kids Borrowing Blindly” found that about half of incoming freshmen can't accurately identify, within a $5,000 range, how much their first year of college will cost them.
The report was based on a survey of 700 freshmen at a single college, and the results mirrored national data published in the National Postsecondary Student Aid Study, which shows that half of college students underestimate what they’re paying for college. Less than a third of students can predict within 30 percent what they’re paying for school, the national study found.
What may be even more alarming is that only 38 percent of college freshmen can accurately estimate how much federal debt they have taken on to pay for school, according to the Brookings study. And nearly 30 percent of students surveyed believed they had no federal debt at all, when in fact, they did.
“It is clear from the analysis presented here that enrolled college students do not have a firm grasp on their financial positions, including both the price they are paying for matriculation and the debt they are accruing,” wrote study authors Beth Akers and Matthew Chingos.
Another study by the National Association of Student Financial Aid Administrators found that a tenth of students underestimated how much they owe in loans by $10,000 or more, made worse by the fact that financial aid isn't always spelled out in clear terms.
“Few financial products used by families are as complicated as student loans,” the study said.
Alex Wright, who is headed to University of Wisconsin-Stevens Point next week, can relate.
He knows the amount he has taken out in loans — zero dollars — but that wasn’t always the case.
“I filled out a financial aid thing on my own and chose loans on accident,” Wright said. He was able to reverse the selection, but said the whole process was confusing and frustrating because “I don’t really do too much with my own tax forms.”
Wright, 18, said he filled out the financial aid paperwork “pretty quick and didn’t really read it.”
Chingos, one of the Brookings study authors, said the lack of financial savvy that teenagers have before they start college is part of the reason they don’t know how much they’re borrowing or spending.
“When a lot of people are raised, they weren't really the ones making the (fiscal) decisions,” Chingos told NBC News. As a result, “people aren’t really thinking of college in financial terms, but rather, a bunch of paperwork to sign,” he said.
That lack of money awareness can also contribute to difficulty comprehending the staggering cost of college.
“They see the numbers and they have no context for understanding what that number really means,” said Akers, another author of the Brookings study. Because some teenagers have never managed money, they have “no point of comparison, like what does rent cost and things of that nature,” Akers told NBC News.
“If you don't know how much you're borrowing, you don’t know what kind of income you need to earn in order to pay it back.”
Jimmy Shaw, 18, was able to accurately relay what he will pay for his freshman year at the University of Michigan and the amount he had taken out in loans. He credited his parents for keeping him involved in the conversation about tuition and financial aid when he was choosing a school.
“We’ve have been saving up and working towards this for a while,” Shaw said. “We had many, many talks about it.”
Shaw also said his summer job at an ice cream shop helped him to understand what the numbers meant.
“I’ve seen my college savings get up to about $2,000, and I’m kind of looking at that and thinking ‘Wow, I have ten times that to go, and that took me the entire summer,’” Shaw said. “I’m kind of looking at a mountain top right now.”
Shaw, and many other students, may feel overwhelmed by the cost of college and the amount of debt they’re taking on, but awareness is more beneficial than four years or more of ignorant borrowing and tuition paying, Chingos said.
“Many students look back on their educational experiences with some regret about the financial circumstances,” Akers and Chingos concluded in the Brookings study. “The consequences of their decisions come as a surprise to them once it’s too late.”