Student loan debt is something most young adults who went to college have to budget into their daily life. With total U.S. school loan debt above $1.7 trillion, it’s no surprise people are sometimes opting not to buy homes or new cars. But are students spending the money they borrowed strictly on college-related expenses? In a new study, CollegeFinance.com asked 1,048 college graduates to break down their true disbursements of money borrowed, their biggest wastes, and even the financial repercussions of specific purchases as a student. Here are some of the results.
Student Loan Statistics
Sometimes when students take out more money in loans than they need for the year, they receive a check for the difference. This money received is called a residual disbursement. Approximately 3 in 5 of the people surveyed said they received a residual disbursement check. Of respondents who received residual funds, 63% kept the money, 22% returned some of the funds, and 15% returned all of the cash. About 80% of respondents felt it was necessary to keep the excess funds, and 60% believed it best to save the money.
Nearly all (89%) of the respondents with extra money spent it on what were considered essentials at the time, but 50% of those later regretted it. Moreover, 75% said they bought nonessential items, and 79% admitted regretting those purchases. While residual funds might seem like free money to those who don’t understand their loan terms, those who do know that they will be paying a lot of interest on that “extra cash.”
Student Loan Knowledge
When filling out applications for student loans there is a great deal of loan agreement fine print. Do students actually know the ins and outs of how these types of loans work? The study revealed that only 68% of students understood how student loans are calculated, and 2 in 3 students knew the total cost of their loans, including interest. The data also assessed if grade point averages (GPAs) played a part in comprehending the complexities of student loans. Students with above-average GPAs were more likely to understand the facets of student loan details, however, students with below-average GPAs weren’t far off.
What exactly did these graduates purchase with their newfound funds? According to the study, 69% spent their money on housing expenses, 40% bought laptops, and 27% bought clothing. Other ways students spent their money was on food delivery (13%), alcohol (11%), and partying (8%). How did these students feel when the money was gone? Nearly 1 in 4 students regretted spending their extra money on housing expenses. More than 1 in 3 wished they would not have purchased their laptops. Almost 3 in 4 respondents regretted spending their money on fast food.
Women were more likely to spend their money on housing and school essentials while men spent their money on electronics, food, and partying. It might have seemed like a good idea at the time, but students in need of funds might have been better off spending through low interest credit cards as opposed to spending their residual funds which typically have a hefty interest rate. On average, respondents used $1,588 of their residual student loan funds, but even with that extra money for the semester, it sometimes wasn’t enough. The average amount of money spent on housing expenses was $3,405, and additional education expenses averaged to $2,062. Even students’ phone bills averaged $1,610.
The most significant difference was with how interest is calculated. Students with above-average college GPAs were 10 percentage points more likely to understand this concept. But above-average and below-average students were able to grasp the minimum monthly payments of their loan almost equally – 66% and 64%, respectively. Only 73% of those surveyed thought they would be able to repay their student loans. More than half (63%) are hopeful the government would enact universal student loan forgiveness. Nearly 1 in 5 believe they will not have to repay their full loan amount. Understanding student loans can sometimes be tricky. For those who have questions about the specifics of their particular loan, contact your loan servicer for more information.