Anxiety About Paying for College Mounts Among Parents
09 Junho 2008 - 12:12PM
PR Newswire (US)
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 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. DATASOURCE: MyRichUncle CONTACT: Media
Inquiries: Karin Pellmann - VP, Public Relations, MyRichUncle,
+1-212-444-7541 (direct), , or Adria Greenberg - Sommerfield
Communications, +1-212-255-8386, , for MyRichUncle Web site:
http://www.myrichuncle.com/
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