The Cost of Education is Major National Issue that the Next President Needs to Address, According to Major Survey of American Parents on Education Finance Vast Majority of Parents are Concerned About the Debt Students Need to Take on to Pay for College
NEW YORK, June 9 /PRNewswire-FirstCall/ -- Parents of college-bound
students and college students believe the mounting cost of college is
unjustified and that the price of education is a serious national issue
deserving priority attention by the next president.
When it came down to it, the cost of the college education parents had
planned was more than they anticipated. On top of frustration regarding the
cost of college, parents are worried about the debt that their children and
they themselves are taking on -- and, at the same time, confounded, and
misinformed, when it comes to intelligent student loan borrowing.
These insights are among the findings of a recent major survey of 1,000
parents of college-bound high school students and students currently in
college. The survey was sponsored by student loan company MyRichUncle (MRU
Holdings, Inc. [Nasdaq: UNCL]).
"Parents and students should not lose sight of the importance of higher
education. It is probably the most important investment they will ever make.
The frustration is understandable, as education costs are substantial and as
economic uncertainty squeezes many families," said MyRichUncle Co-founder and
President Raza Khan.
"Figuring out the best process to pay for college is not an easy task, but
parents and students need to do the research and do the math so they can
accurately gauge the total expense of an education and the true cost of
borrowing. Because the process can be complicated, we agree with America's
parents that education finance should be a priority issue for the next
administration," he added.
College Costs are Unjustified -- Leading Some Parents and Students to
Consider a Range of Alternatives
Two-thirds of parents -- 66% -- say annual increases of 5% to 8% in the
cost of college are not acceptable. Far more parents in the Northeast (75%)
feel this way, according to the survey.
Despite this, 76% of parents say it's a "good value" to "great value."
However, a significant minority -- 22% -- say the return on the investment in
college is a "fair to poor value." Importantly, parents with household incomes
under $50,000 are most likely to discount the value of investing in a college
education.
A third of parents say they're counseling their children to consider
living at home or to attend a lower-choice college, if it offers financial
aid, in order to save money. Twenty-seven percent say they're discussing with
their children the option of spending less on an undergraduate school so they
will be able to spend more on a high-quality graduate education.
According to the survey, 40% of parents believe education costs represent
"a major national issue needing priority attention from the next president."
The parents most likely to agree with this position are those who did not
attend college themselves (53% agree) and those with household incomes below
$50,000.
Anxiety About Paying for College -- and About Indebtedness -- is
Heightened
Sixty-two percent of parents say the cost of obtaining a college education
is beyond what they anticipated, and 59% say they can only pay part of the
cost, with 32% saying they'll pay less than half.
Seven out of 10 parents who do not expect to pay most or all of the bill
say student loans will be a necessary funding source.
The vast majority of parents of college-bound high school students (77%)
are worried that paying for their children's education will hurt their
retirement nest eggs. Even the wealthiest parents -- 63% of those with over
$100,000 in household income -- say college costs will stress their savings or
prompt borrowing.
The subprime mortgage crisis is adding to anxiety over college costs: Most
parents (59%) believe the subprime situation and economic climate will make it
more difficult for them and their children to qualify for loans to pay for
college.
And, at the same time, student indebtedness is a source of concern. Three-
quarters of parents are worried about the college debt their children are
taking on. Indeed, 51% of parents are "very concerned." Moreover, 85% of
parents whose children have already taken loans say they're concerned about
the debt.
Worries May be Compounded by the Unknowns and Surprises Surrounding Paying
for College
"Anxiety surrounding paying for college and the debt it often entails is
certainly understandable. Our view is that these concerns are heightened
because there is so much that's unknown: Parents find it difficult to estimate
the cost of school and are often taken aback by the real costs. Going into
the process with eyes wide open -- and doing the math -- may be difficult at
first but should reduce stress going forward," said Mr. Khan.
Seven out of 10 parents say they have found it challenging to estimate the
total costs of their children's college education. In fact, nearly four in 10
(39%) say it's "very" or "extremely" challenging. (55% of parents whose
household incomes are under $50,000 find it "very" or "extremely" challenging
to estimate the cost.) A full quarter of parents -- including those with
children already in college -- admit that they are not sure how much money
will be required to finance an undergraduate education.
Parents are finding themselves surprised at the price tag for a college
education. Most parents -- 62% -- say the total cost of an undergraduate
degree is more than they anticipated, with 22% saying it's significantly more.
Underestimation of the total cost is more likely to occur among parents
with children in private colleges. The probable cost of college is about
$129,000 for four years at a private college, yet parents with children in
private colleges underestimate the cost by as much as 44%; they believe it
will only cost $89,000.
Borrowing for College: A Sea of Misconceptions, Unknowns and Potentially
Costly Mistakes
"The reality is that most people -- 69%, according to our survey --
believe their children will have to borrow to pay for college. Borrowing can
be a very smart move, if the overall gain from education exceeds the cost, but
there are potential mistakes and pitfalls for the parent or student who does
not take the time to understand the process and choices. Going in with the
attitude, 'I'll borrow what I need now and worry about it later,' can be
detrimental in the long run. Families need to borrow with the level of
knowledge, research, seriousness and business-mindedness that they use when
securing an auto loan or choosing a health insurance plan," said Mr. Khan.
"That's one of the key reasons why we at MyRichUncle strive to provide
tools, guidance and information that enable parents and students to make smart
decisions about student loan borrowing. It's good for the family, and it's
good for our business," said Mr. Khan.
"However, according to our survey, not enough families are as informed as
we'd like," he added.
Borrowing Should be More Thoughtful
Smart borrowing is important, as the level of student loan borrowing is
significant. According to the survey, parents believe their children will
finish college with between $20,000 and $25,000 of debt. Parents in the
Northeast estimate that it will be $27,500. (One in 10 parents believes their
children will have $50,000 or more in college debt.)
Beyond their children taking out student loans, parents believe that they
themselves will borrow. 55% -- and 64% in the Northeast -- say they will do
so. The amount they estimate borrowing is $25,000, but the estimated amount
goes up as children progress in college. Parents of sophomores, juniors and
seniors think they'll borrow a total of $30,000.
"Borrowing for college is a reality for many families. As they consider
this option, they should know there are smart college borrowing rules of
thumb, which are critical, that too many parents and students either are not
aware of, overlook or do not know how to follow," said Mr. Khan.
According to Mr. Khan, the rules of thumb for student loan borrowing are:
-- Do not borrow a dollar more than you really need.
-- Assume the cost will rise by approximately 5% to 6% each year.
-- Look for and secure grants and scholarships before loans.
-- Look for cheap money: Federally-guaranteed Stafford loans are less
expensive than private student loans.
-- Look for the "cheapest cheap money": Some lenders charge less than
others for federally-guaranteed student loans. (The government does not
set the rate; it sets the maximum rate.)
-- Private student loans should only be considered as a way to fill any
gap. (Know that private student loans are almost always cheaper than
credit cards.)
-- When going for private loans, shop hard and thoroughly, and do the
math: One percentage point of interest can make a big difference in
terms of the total amount you have to pay back.
-- Carefully consider the pros and cons of loan repayment options,
including deferment while in school. Deferring reduces the strain of
making payments while so much capital is being spent on tuition and
other expenses. However, deferring does increase the overall cost of
borrowing.
-- Do not borrow more than you believe you can afford based your expected
income post-graduation.
"Unfortunately, these guidelines are not made clear to significant
portions of parents, according to our survey, which makes it a costly
scenario," said Mr. Khan.
For instance:
-- More than a quarter of parents - 27% - say efforts to shop for better
loan rates or fill out paperwork for cost reductions are not worth the
trouble.
-- A quarter (25%) of parents with children in college who are using
student loans believe it is not necessary to shop around for student
loans because they (mistakenly) believe interest rates are fixed by the
government.
-- Nearly one in four parents believes that a 1% difference in student
loan rates does not make that much difference in the long term. (This
includes 25% of parents of college students who are now using student
loans.)
"These are all serious misconceptions," said Mr. Khan. "We believe
current information sources are failing parents and leaving them and their
children at a considerable disadvantage when it comes to funding a college
education."
It's an Issue of Complexity, Confusion -- and Lack of Guidance
The survey results suggest that student loan borrowing mistakes and
misconceptions stem from the fact that the process confuses parents and leaves
them uncertain about choices they must make.
-- 57% of parents of college-bound high school students are not confident
that they know which student loans should be applied for first.
-- Most parents of college-bound high school students - (57%) - and nearly
half of parents with children already in college (43%) say they are not
confident they understand the range of interest rates on student loans.
-- The majority of parents (54%) say they do not understand the options
for obtaining student loans from lenders.
-- Nearly half of parents (48%) say they do not understand the repayment
options on student loans.
-- While 77% of parents say they understand how to obtain scholarships for
their children, 37% say they do not have an understanding of the
process of how to obtain a Federal student loan.
-- Two-thirds of parents say they feel the student loan application
process is difficult. Interestingly, more parents with children going
to private colleges - 74% - say it's difficult.
-- In contrast to their level of understanding student loans, most parents
- 70% - say they're confident they understand how to obtain home equity
loans.
Unfortunately, the difficulty in understanding how to get student loans is
more prevalent among parents with household incomes under $50,000 than parents
with greater incomes.
A Wake-Up Call for Schools and Lenders: More Intensive Financial Guidance
is Needed
"The knowledge gap and confusion that the survey confirms suggest that
more focus needs to be devoted to providing guidance, education and clarity
regarding how to pay for college," said Mr. Khan. "Accordingly, we at
MyRichUncle are working hard to ensure that our materials and Web site offer
accurate, clear and time-tested guidance and education."
The results suggest that parents feel - and are - adrift when it comes to
education finance. For instance,
-- Only 19% of parents say the financial aid office gave them a lot of
information about the types of federally-guaranteed and private loans
available and the order in which they should be applied for.
-- Only 22% of parents say they have a good understanding of how to obtain
financial aid via universities and colleges.
-- 69% of parents say it's a challenge to know where to go to get the best
advice about the types of options available for paying for college.
(In fact, 31% of parents say it's "very" or "extremely" challenging.)
-- Fewer than a quarter of parents say they received a lot of information
from the financial aid office on loan payback amounts (23%) and the
ramifications of deferring payment on private loans (19%).
-- Most parents say financial aid offices provide little to no information
about the long-term impact of incremental interest rates.
-- Only 20% of parents said they received a suitable amount of advice from
the financial aid office about the importance of shopping around for
the best rates on all types of student loans.
-- Just 22% of parents who have obtained student loans are confident they
got the best rate possible.
"We cannot emphasize strongly enough that, particularly in today's market,
parents and students need to become active, educated and thoughtful
participants in the process of figuring out how to pay for college. To leave
the onus on the financial aid office could mean setting yourself up for
unnecessary debt burdens long into the future. A college education is truly
an important investment and securing it with the least financial burden should
be the goal for every family today," Mr. Khan said.
About MyRichUncle(TM)
From its inception in 2000, MyRichUncle(TM), the consumer brand of MRU
Holdings, Inc. (Nasdaq: UNCL) has been at the forefront of innovation for
education finance, most recently focusing on the growth market of student
loans. Since May of 2005, MyRichUncle has originated more than $400 million
private and federal student loans using its breakthrough underwriting
platforms and innovative technology to deliver competitively priced products
and services to borrowers. In May 2006, the Company launched Preprime(TM),
the first and only student loan that allows students to qualify for loans
based on individual merit, rather than credit history alone. In June 2006,
MyRichUncle launched its federal student loans with upfront interest rate
reductions at repayment. Dedicated to reshaping the student loan industry to
function in the best interests of students, founders Vishal Garg and Raza Khan
and their team are committed to delivering the most innovative solutions for
their customers. The Company and its founders have been recognized by Fast
Company's Fast 50 (2006) and listed among BusinessWeek.com's Tech's Best Young
Entrepreneurs (2006). For more information, visit http://www.myrichuncle.com.
*Survey results are based on completed interviews with a total of 1,000
parents of college (n=500) and college-bound high school students (n=500)
conducted by telephone from January 29 through February 11, 2008. This
national public opinion survey was designed and conducted by Michaels Opinion
Research, Inc.
A preliminary national telephone survey of 1,000 Americans age 18 and
older utilizing a random-digit-dial sampling methodology to accurately reflect
all households in the US was conducted to establish the incidence of
households with college and college-bound high school students (20%).
To effectively reach parents of college and college-bound high school
students for the survey research, interviewing was conducted from a central
telephone facility utilizing an age-targeted sampling methodology based on
incidences established in the preliminary survey and was proportionalized by
age ranges 35-44, 45-54 and 55-64. The sample was custom-designed by Survey
Sampling, Inc.
The margin of error for results based on the total national sample of
1,000 parents is +/- 3.1 percentage points. For subgroups of parents of
college-bound high school and current college students (500 each) the margin
of error is +/- 4.4 percentage points.
SOURCE MyRichUncle
