Americans have more than $1.2tn in student loans – at least, they think they do.



Many college freshmen, at least, are not actually aware how they are paying their tuition – an indication of a larger trend of students taking on debt blindly, unaware how much they are actually borrowing.

Six in 10 college freshmen don’t really know how much debt they have taken on to pay for their first year in college, revealed a survey of 599 students at one American public university.



Debt seemed to just fall into a black hole for many young people. Just 38% of the respondents were able to estimate the amount of student loans they have taken on to pay for their freshman year.



About 16% had no idea what their debt was, 19% underestimated their burden and 28% overestimated.

The survey’s results weren’t a fluke, say Elizabeth J Akers and Matthew M Chingos of the Brookings Institution.



Comparing the results to a nationwide dataset, Akers and Chingos determined that the responses collected at that one college campus were representative of the nation.



Students’ lack of awareness about the amount of their debt was typical across all types of colleges.



At a public four-year colleges, 24% correctly estimated their student debt within 10%, while 22% overestimated and 54% underestimated it.



At private colleges, 27% knew about how much they owed, while 23% overestimated and 50% underestimated.



At two-year colleges, 29% got it right, while 22% of students overestimated their burden and 49% underestimated it.

The main problem? Federal loans.

Students who had financial aid packages containing federal student loans were the most likely to say they had no debt.

“The largest number of students underestimated their federal debt level by between $5,000 and $6,000. This is because $5,500 is one of the most common debt levels for first-year students, and many students with federal debt report that do not have any federal debt,” write Akers and Chingos. “We find that among students with federal loans, 28% reported having no federal debt and 14% said they didn’t have any student debt at all.”

Among major types of federal loans are federal Perkins loans, William D Ford direct Stafford loans, direct PLUS loans and direct consolidation loans.



Outstanding federal student debt accounts for 92% of the student loans market. Of the $1.2tn owed in student loans, over $1.1tn is in federal student loans.



The Brookings study was focused on college freshmen. It is unclear whether this confusion about their student debt continues up to – and past – their graduation, when many of these loans start coming due and begin to collect interest.

There are indications, however, that ignorance of debt burdens extends past graduation. By September 2013, about 174,800 borrowers who had defaulted on their federal student loans were having their paychecks garnished, according to the Wall Street Journal. That’s 45% more people than 10 years ago.



Once borrowers are considered for wage garnishment, the Department of Education can take as much as 15% of their after-tax income. The government does not need court approval to start garnishing a person’s wages.

The majority of borrowers who had their wages garnished, at 72%, had their income garnished for longer than a year. Many remain in garnishment for as long as five to 10 years, Mark Kantrowitz, senior vice-president at Edvisors.com, told the Wall Street Journal. According to Edvisors.com, which tracks student-loan debt, by March 2014, 2.5 million borrowers were in default on their federal student loans.

Facebook Twitter Pinterest ‘I owe how much? Will this cover it?’ Photograph: David Malan/Getty Images

“It is possible, even likely, that this lack of knowledge will cause students to be surprised when their financial circumstances become apparent, perhaps when their first loan payment comes due,” write Akers and Chingos. They say that students who find themselves in such circumstances express regret about their college education choices.

Guardian readers have previously expressed frustration with the lack of knowledge and advice they had regarding the financing of their college education.

“I wish my parents had pushed for me to go to a community college or had helped me weigh my options better. Instead I went to a private university and received a degree in the humanities. At 26, I have over $30,000 in student loans. I just got my first ‘real job’, where I have been able to start paying down my debt”, Shay, a reader from Montana, told the Guardian. “But does an 18-year-old really understand the concept of what $40,000 in debt is? I hardly think so.”

Not being aware of how much debt one has after graduation can quickly escalate and lead to missed payments and default. Loans are considered in default if borrowers miss 12 monthly payments in the row. Defaulting on federal student loans can lead to garnishment of paychecks.

To get its money back the US government also has garnished social security benefits and federal tax refunds. In 2013, the money taken out of American’s social security checks amounted to $150m. The money collected through garnished federal tax returns amounted to a whopping $2bn.

While student-loan defaults are well above historic levels, at 11.1%, it’s not just recent graduates who are responsible. It turns out that about $18bn of the $1.1tn owed in federal student loans is owed by Americans 65 and older.