Here’s the harsh reality: The number of students who have debt has increased, and the amount of money that they have borrowed has gone up. These borrowers then graduate into a world with weak employment prospects. It’s a bad situation leading to higher loan default rates.
Blame the economy or student naiveté. Heck, even blame financial aid officers who have done their jobs too well. “Applying for loans through the financial aid office has become a streamlined, relatively simple process for such large amounts of money. It’s easy to dismiss the reality that those loans are going to be sitting around for you to pay back after you’re done with college,” says Bob Voytek, director of student financial aid and veterans services at Coconino Community College (Ariz.).
But no matter who gets blamed, campus administrators need to talk about solutions to rising student debt.
In 2007, American Student Assistance, a loan servicing company, published its Report on Student Debt and Alumni Giving. It compared two sets of borrowers, one a sample of American Student Assistance clients, the other graduates of an unnamed Midwestern public university. Most responders in both samples reported the amount borrowed was worth the intellectual and personal growth they received on campus. Less than 40 percent of those in the ASA sample agreed that a college degree was worth any amount borrowed, however. Nearly 60 percent reported that loan repayments caused them more hardship than anticipated. (Note that this survey was completed pre-recession.) Almost the same number said that if they had to do it over again, they would borrow less money.More than a third would choose a less-expensive college.
Debt repayment is no longer an issue for the financial aid office alone, and the discussion can no longer be put off until borrowers graduate. Campuses are buzzing about student debt in admissions, advising, and alumni offices. The conversations are taking place among the administration, applicants, students, parents, and alumni and not everyone likes what they’re hearing. Following are several fly-on-the-wall perspectives of how talks with individuals in a few core groups tend to go.
Prospective Students and Parents
The conversation starts at admissions. For years, parents have assumed that if a child gets into a college, there will be a way to pay for it, and that starting salaries would be high enough to cover loan payments. That math has changed, and families need to consider the costs of college at the time of application. They need admissions officers to give them guidance.
“Over the past few years, families are more interested and aware of the financial aid process. In the past, they just figured that it would all work out,” says Murphy Monroe, executive director of admissions at Columbia College Chicago.
The financial aid calculation for the traditional undergraduate assumes that the parents will be paying some of the bills, and the resulting recommended debt level should be in line with a typical starting salary for a college graduate. The problem is that many families cannot or will not meet that expected contribution. Some have been overspending or have not saved enough for retirement, while others simply believe education should be entirely the student’s responsibility. Parents can borrow money through the federal Direct PLUS Loan program, and some do with the expectation that their children will repay them. Other students borrow additional funds from private lenders. In either case, students end up with more debt than may be feasible so they can attend their dream colleges. “These are the students we pay attention to,” says Eileen O’Leary, assistant vice president of student financial services at Stonehill College (Mass.), a Catholic liberal arts institution.
Sometimes families who appear able to contribute to their children’s education choose not to. In those cases, financial aid officers there have sometimes told students to consider going elsewhere. For example, if an applicant facing a heavy debt load is planning to go into a field that requires a master’s degree and that does not pay well, it may be better for that person to attend a less-expensive university. O’Leary and her colleagues are willing to have that conversation, as painful as it may be.
Similar talks have taken place at Columbia College Chicago, a private arts college. Its admissions program helps attract students who love the arts but did not have high school programs that let them build portfolios or train for conservatory work. It’s a dream opportunity for many creative kids.
But the reality is that the equipment and facilities needed for arts education don’t come cheap, and most people going into film production, dance performance, or creative writing will not have high starting salaries. They are unlikely to handle repayment of high student loans even in a good economy. On occasion, Monroe has advised applicants not to go to Columbia, at least not straight out of high school.
In recent years, many Columbia graduates started their education at lower-cost institutions, such as state universities and community colleges. “This fall, we’ll enroll approximately 3,500 new students, and approximately 2,300 will be freshmen,” Monroe says. For high school seniors who want the Columbia experience but really can’t afford four years of tuition, he and his staff often make specific recommendations about courses of study at community colleges so that those folks can make a successful transfer. “We want those students to enroll at Columbia,” he explains. The hope is that if a student can only afford two years at Columbia, they will be the last two years, where the student can take upper-level classes and become a happy, successful graduate instead of having to transfer out early on, with mostly general education credits and a bitter experience. “It gets tricky for students because they fall in love with a college,” Monroe says.
The staff at Prescott College (Ariz.), a liberal arts school with many nontraditional students, often has to talk to students about the challenges of being an undergraduate and a working adult. In the last few years, the campus has faced a new issue: people who want to enroll but who had defaulted on a student loan from years earlier in their academic careers. The number is small, but the situation is entirely new. The admissions staff works with these applicants to help them start fresh. “People can resolve their defaulted status,” says Mary Frances Causey, director of financial aid, but default can also hold up the transfer of transcripts. Students who pursue nontraditional academic paths don’t always understand that the loans for even one semester come due six months after leaving campus, and some of them get into trouble.
The tone and culture of a campus starts at the top, and admissions and financial aid officers don’t always have the luxury of telling a student to go elsewhere, transfer in two years, or take a part-time course load so they can work. Bringing in a successful new class is challenging. “We are a nonprofit college that is tuition-dependent, and we have a budget to think about,” says Monroe. That’s why getting the backing of the administration is critical if that kind of conversation must sometimes take place.
At Columbia College Chicago, officials support the admissions process because they want those who attend to be successful. “The relationship between enrollment and retention is important,” Monroe says. “We need to recruit students who have a real chance to succeed at the college educationally, socially, and financially. It is critical to our health as an institution.”
O’Leary says that the Stonehill financial aid office can suggest less expensive schools as alternatives. “We have sanction from our president to give our best advice,” she says. Twice that she can recall, students and parents have complained to the president about the recommendation that they were given, and both times, he supported the staff.
‘We need to recruit students who have a real chance to succeed at the college educationally, socially, and financially. It is critical to our health as an institution.’ —Murphy Monroe, Columbia College Chicago
Not every campus has taken the same view. In June, Kaplan University, an online for-profit university based in New York, was ordered to pay $1.6 million to settle lawsuits alleging punishment against whistleblowers. Employees complained that they were being asked to admit students to a surgical technology program even though there were no externship programs available for them. Without the externship, those enrolled often defaulted on their student loans because they could not get certified to work in the field.
At Prescott College, the administration has supported borrower education programs because officials were unhappy about an uptick in the default rate. “We’ve all been interested in getting students to think about this sooner, before they leave campus,” Causey says, and that concern has given her office the resources needed to better advise students.
Faculty, Advisors, and Student Life Administrators
For years, discussions of financial aid have taken place at the periphery of the institution: at admission and graduation, by administration and not by those working in academic or student affairs. Thus, the logistics of paying for college have been removed from the core of the educational and social experience that attracts people to higher education in the first place. Yet, the way that students manage their academic careers can affect how much they borrow and how well they can repay their loans after graduation.
“We require students to build a budget that shows what their expected income will be when they graduate and what their expected expenses are when they graduate,” says Voytek of Coconino Community College. “We require them to also figure out what their monthly student loan repayment will be and how they will fit that into their budget. Sometimes, this is the first time that a student has ever tried to build a budget, and it can serve as an excellent reality check.”
Coconino has added a one-credit personal money management course to the curriculum to help students make better decisions. At Prescott, Causey says that the student life office is getting more involved in financial issues, adding programs on finances for freshmen.
Prescott has a self-directed curriculum, but students still need to meet certain course requirements to graduate. One campus initiative is to improve advising to help students graduate on time, reducing their borrowing and increasing alumni satisfaction. “Students need to use their years wisely,” Causey says.
Full-time status for financial aid purposes is not the same as full-time status for on-time graduation. Some students who pay more attention to their financial-aid status than their academic status end up going to school an extra year, incurring an extra year of debt in the process. The academic staff sometimes exacerbates the problem by making recommendations that delay graduation, such as telling a student to drop a class or to take a light load until an ideal course becomes available. The faculty and academic advising staff often don’t understand the role of debt in their students’ lives. Financial aid and student life employees need to have this discussion with them.
It may not seem like these decisions affect loan default rates, but they do. Undergraduates who finish in five years are slightly more likely to become delinquent or default than those who finish in four (28 percent versus 27 percent), according to American Student Assistance.
The difference isn’t huge, but it can affect a campus’ default statistics, as well as graduate satisfaction with their college experience. Some institutions, including Western Michigan University and Manchester College (Ind.), have created guarantee programs that set out a degree plan and assure students that they will be able to get the classes necessary for graduation. At Western Michigan, for example, students who participate in the program agree to take 30 credit hours a year, meet with an advisor once a semester, and declare a major after the first year. They are also expected to take classes that are available, even if not convenient—no passing on an 8:00 a.m. chemistry lab or an evening course if it fits the degree plan. If students do their part and still can’t graduate on time, fifth-year tuition is free.
At Prescott, administrators have found that students sometimes take reduced loads or even a semester off to earn money for tuition. This increases time to graduation, but may reduce default rates. Prescott’s programs are designed to be flexible to accommodate these people, and that’s an advantage that admissions officers discuss when talking to prospective non-traditional students.
No matter how a campus meets it, the academic goal should be graduation. Research has shown that students who complete their education are more likely to repay their student loan. Of those who started repaying loans in 2005, ASA found that 59 percent of undergraduate borrowers who left school without a degree became delinquent or defaulted on their loans.
The conversation isn’t always easy, but it is necessary, and it is taking place right now. Will your campus be part of it?
Ann C. Logue is a Chicago-based freelance writer who specializes in covering finance.