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Abstract
The purpose of this study is to examine the level of knowledge students have pertaining to student loans. College tuition has increased over time. Consequently, the number of students requiring financial aid in the form of student loans has increased. This study measures the level of knowledge students have about these loans to assess whether or not financial knowledge and other demographic information predicts the level of student loan debt. The results indicate that students in a later year in school and students with lower grade point averages are more likely to have higher student loan debt levels. Additionally, the results indicate that in-state students have a lower probability of having higher loan values. Race is also a predictor of student loan debt levels. African American students are more likely to have higher levels of student loan debt than other races. Higher levels of credit-card debt and financial independence are also related to higher levels of student loans.
JEL classification: D14
Keywords: Student loan debt; Financial literacy
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1. Introduction and background
College students are faced with the managing of financial challenges and increasing debt is the biggest concern of those challenges. Many studies have examined the rise and impact of credit card debt among college students (see Lyons, 2004; Norvilitis et al., 2006; Pinto & Mansfield, 2006 for recent examples). The cost of attending college has increased significantly in the last 10 years. The average cost of attending a public four-year institution1 was $11,496 in 2001-2002. A decade later, 2011-2012, the average cost of attending college had increased by nearly 50% to $17,131. Overall, the average cost of attending college increased an average 5.6% per year beyond the rate of inflation over the last 10 years (College Board, 2012).
Consequently, the number of students requiring financial aid has increased. Coinciding with the rising cost of attending college is the rising amount of student loan debt among college students. In fact, by 2010, the amount of student loan debt was greater than the amount of credit card debt in the United States (Levin, 2011). Additionally, in 2010, two-thirds of graduating seniors had student loan debt, compared to less than half in 1993. In 2011, students left college with...