Debt defense: How financial aid administrators can help curb cases of crippling student debt
Despite jarring news headlines depicting students with six-figure debt levels, the average student borrower’s debt burden is not necessarily devastating.
Among graduates in 2011 who borrowed to pay for higher education, the average loan debt at graduation was $26,600, according to the Project on Student Debt. Only 1.5 percent of borrowers owed $100,000 or more in 2007-2008, according to an analysis by Mark Kantrowitz, publisher of Edvisors Network.
Any level of debt can become burdensome for students—and even lower levels of debt may be burdensome for some students. Struggling borrowers may have not completed a degree, thus making it more difficult for them to find a job where they earn enough to make their payments.
Others may have transferred to multiple institutions without transferring credits, significantly extending their amount of time in school—and the amount of money they need to pay for their degree. For others, the return on investment for their degrees or certificates simply might not be enough to justify the amount they borrowed.
Allowing financial aid administrators to limit the amount of borrowing for certain categories of students—or requiring additional loan counseling for these same groups—may help curtail issues before they begin to spiral.
Current law sets universal limits on federal student loan borrowing at the undergraduate and graduate levels. Because federal loans are considered an entitlement, students can ask to borrow up to their full limit, whether they truly need that much money or not.
Calls for allowing financial aid administrators to limit student borrowing are becoming increasingly common. The topic even arose during the Department of Education’s negotiated rulemaking sessions on gainful employment in September—even though it is not within the scope of borrower limits.
“We can counsel, we can coax, we can do the best we can to get them to borrow less, but the rules require that we tell them everything they’re eligible for,” one committee member said. “They want those funds in their hands, as quickly as they can get them.”
According to a report written by NASFAA’s task force, “This lack of restriction on annual loan limits can lead students to accumulate high loan debt very quickly without making progress toward degree completion, or to struggle to repay loan debt that is excessive relative to the expected earnings for the student’s field of study or credential. If students insist on borrowing up to their maximum eligibility under the law, institutions have little practical choice but to approve their loans.”
Financial aid administrators do have some ability to limit loan borrowing. On a case-by-case basis, financial aid personnel can exercise professional judgment and impose a limit. Professional judgment is only to be used in extreme circumstances and aid administrators are often reluctant to use this authority, as its use faces strict scrutiny in audits and program reviews.
NASFAA’s task force recommends an alternative approach: Aid administrators should be able to set an institutional or programmatic borrowing level for specific categories of students. Then, if the professionals felt an individual student truly did need to borrow up to the federal limit, they could exercise professional judgment and package a full loan. Under this structure, only half the aggregate loan amount could be awarded to students going part time, for example.
Changing the current practice would require statutory or regulatory action.
“Giving financial aid administrators the oversight to determine how much a student actually needs to borrow for a given program is in the best interest of both students and institutions,” says NASFAA President Justin Draeger.
Through experience, these administrators likely have a better understanding of program costs and the consequences of over-borrowing, he adds.
“Setting caps on borrowing where needed, while reserving the right to make professional judgments on a case-by-case basis, will help administrators guide students in the direction that is most financially advantageous for them.”
Katy Hopkins is a web reporter and editor at the National Association of Student Financial Aid Administrators.