The first in her family to go to college, Alicia Aiello wanted more than anything to study at Syracuse University. But tuition at the private university was expensive, her parents couldn’t help much, and she didn’t get enough financial aid to bridge the gap.
So within her first semester, Aiello found herself taking out an $18,000 bank loan she couldn’t afford, with terms she didn’t entirely understand, on which she’d owe $6,000 worth of interest before she paid back even a penny of it.
“I was really confused, and when I found out someone would give me $18,000 without a co-signer, I was really excited—until later down the line, when I found out how much I was going to owe,” Aiello says. “That was the biggest mistake I ever made.”
Many students are making mistakes like this, revealing the little-reported reality that America’s student-debt crisis is being fueled in large part by borrowers’ ignorance about financial matters in a system that makes getting a loan so easy that many don’t have a clue what obligations they’ve assumed.
“A lot of us don’t have parents who went to college or who understand anything about this process,” Aiello says. “I have a lot of friends who just signed those loans without any idea what was going on. There are a lot of oblivious students.”
Students appear to know so little about the repercussions of the loans they take out, in fact, that some universities are starting to require them to undergo financial-literacy training. The first statewide plan to curb student-loan defaults, announced with great fanfare by the State University of New York system, consists not of making more direct grants available or providing tuition discounts, but almost entirely of helping students better understand the debt they’re getting into.
It’s not altogether altruistic. Universities and colleges are being judged on their average loan debt and default rates, and stress about finances can derail students and cause them to drop out at a time when funding of public higher education is increasingly tied to its success at producing graduates.
