A r c h i v e d  I n f o r m a t i o n

Borrower Awareness of Key Features
and Conditions of Loan

Awareness of Loan Terms

In addition to the items that measured borrower satisfaction, respondents were asked a series of three questions relating to awareness of features and terms associated with their loan.

Question #E1, E2, E3 (Students), #D1, D2, D3 (Parents)

a. What was the approved amount of your student loan for the 1994-95 academic year? b. What is your interest rate for your 1994-95 loan? c. Approximately many years do you think it will take you to pay off your Federal loans incurred while attending school?

Borrowers indicated a relatively low awareness of the key terms and features of the loan programs. No significant differences were found between the Direct Loan and FFEL Programs.

When borrower responses were compared to information from the National Student Loan Data System (NSLDS), less than one-fourth of student borrowers and roughly one-third of parent borrowers knew their loan amount within five percent of the actual amount specified on the borrower database (Exhibit 10 and Tables 12.1 and 106.1). When asked about their interest rate for their 1994-95 loan, less than 30 percent of student borrowers and approximately one-half of parent borrowers provided rates within one percentage point of the actual interest rate of 8.25 percent; and only a very small percentage (less than five percent) of respondents identified the exact loan interest rate (Tables 12.2 and 106.2).

Further investigation of borrower awareness by loan program showed that approximately one-half of the student respondents, and less than three-fourths of the parent borrowers were able to identify their loan amount within 50 percent of the amount specified on the borrower database. About one-third of the student borrowers and one-half of the parent borrowers were able to specify their interest rate within two percentage points of the actual rate.

The majority of student borrowers (83 percent) and parent borrowers (79 percent) were able to approximate the amount of time that it would take to pay off their loans, which suggests that borrowers were aware that their loans had to be repaid (Tables 12.3 and 106.3).

Significant relationships were found between borrower awareness and many of the individual characteristics examined. The most substantive were the following:

• As expected, student borrowers with loans in repayment were more familiar with their loan information (particularly their interest rate) than those in any other loan status category (Table 18.1);

• Previous student borrowers were less likely to know their loan amount than first time borrowers or those in repayment (Table 15.1);

• Students with graduate level education were more aware of their loan amount and interest rate than those without graduate training (Tables 45.1, 45.2, 48.1, and 48.2);

• Students attending proprietary schools indicated lower awareness of their loan amount than those attending private or public institutions (Table 61.1); and

• Students attending schools with the highest levels of institutional loan program satisfaction typically displayed the greatest awareness of their loan terms (Table 92.1 and 92.2).

There was also a significant relationship between the level of borrower satisfaction with their exit counseling and the awareness of their loan amount. Out-of-school borrowers who were very or somewhat satisfied with their exit counseling indicated a higher level of awareness than those who were dissatisfied.

Awareness of Deferment Conditions/Consequences of Default

To further examine the effectiveness of exit counseling, out-of-school student borrowers and transfer students were asked to identify three conditions for deferment and three consequences of default. Parent borrowers were asked to identify possible consequences of default.

Question #E4, E5 (Students), #D4, D5 (Parents)

a. Can you please tell me three conditions under which you are allowed to defer repayment of your 1994-95 student loan? b. Can you please tell me three possible consequences of defaulting on your 1994-95 student loan?

The majority of both student and parent borrowers were unable to identify three conditions for a deferment, as well as three consequences of defaulting on their loans.

Responses for student borrowers (both Direct Loan and FFEL) were almost evenly split among those who were unable to identify any deferment conditions, those who were able to identify one deferment condition, those who mentioned two conditions, and those who were able to cite three conditions (Table 12.5). There were no significant differences among Direct Loan and FFEL respondents.

The ability to identify the consequences of default differed between student and parent borrowers. While roughly half of the respondents in both groups (students and parents) were able to identify one consequence of default, the percentage of respondents who were unable to identify any default consequences was considerably higher for student borrowers than for parent borrowers. Approximately 26 percent of student borrowers compared to roughly five percent of parent borrowers were unable to cite at least one consequence of student loan default (Tables 12.4 and 106.4).

There were no significant differences in awareness of default consequences between the two loan programs.

In addition:

• Graduate student borrowers, independent students and those between the ages of 25 and 44 indicated the highest levels of awareness of deferment conditions and consequences of default.

• Students attending proprietary schools were less aware of default conditions than those attending public or private schools. Students attending private schools displayed the highest awareness.

• Student borrowers attending schools with annual loan volumes of five million dollars or less showed the least awareness of default consequences; and students attending schools with loan volumes between five and 10 million dollars, or above 20 million dollars were most aware of the conditions for deferment.

Overall Comments Regarding the
Federal Direct Loan and Federal
Family Education Loan Programs

In the final section of the survey, borrowers were asked if they would like to provide additional comments regarding their loan or the Federal Student Loan Program. Since the response to this portion of the survey was voluntary, the results are interesting, but non-generalizable. Approximately 15 percent (526) of all respondents provided comments:

• 10 percent (73) of the Direct Loan student borrowers,

• 13 percent (281) of the FFEL student borrowers,

• 20 percent (48) of the Direct Loan parent borrowers, and

• 22 percent (125) of the FFEL parent borrowers offered comments.

In comparing the responses across all four groups it became apparent that satisfaction and the absence of loan problems, combined with borrowers' gratefulness for the existence of the loan program are the most frequently cited comments. The next most frequent response category for all four groups appeared to be problems with repayment, consolidation, and deferment.

In general, comments focused on various problems and concerns as well indications of satisfaction and gratefulness. Most frequently cited by all groups were indications of satisfaction and gratefulness for the loan program, suggesting a generally positive experience with the Federal student loan programs.

1. Throughout the report, the 5% level of statistical significance was used to test for differences between the loan programs. In those instances where there were no significant differences between the loan programs, the results were not presented in the text.

2. Due to the large number of borrower and institutional characteristics examined, the more conservative 1% level of significance was used to reduce the likelihood of significant relationships occurring by chance.

3. Note that a three-way analysis of variance was conducted to test for interactions between loan program (Direct Loan versus FFEL) and borrower/institutional characteristics when predicting the dependent variables. No significant interactions were found between loan program and the selected characteristics.

4. Respondents classified as Hispanic and those classified as Asian are included in the Other category due to the relatively small sample sizes for these two respondent groups. The Other category also includes open-ended responses with less than five cases.