Managing student loans: The Administrator’s Role
Being a financial aid administrator is an accident waiting to happen these days. The soaring costs for college have produced a soaring amount of applications for assistance, creating a constant stream of traffic at the Financial Aid Office. There are times when it resembles an all-day rush hour, with students and parents in a hurry to get in and get out with some part of the gold they’re convinced is hidden there.
The inevitable crash occurs when the student and parents find out there’s not enough gold in there to give a free ride and frustration sets in. Fingers are pointed. Tempers flare. Administrators are expected to jump in, wave a financial wand, and make things right. Good luck with that.
The collisions in the financial aid office probably are unavoidable, given the volume of traffic. The latest surveys say 67 percent of college students need loans to make it through school and most of them need it all four years.
The trick then is to lessen the damage to students and parents by helping them understand enough about the choices, terms and possible dangers of taking on student loans. That’s how financial aid administrators can really be useful.
A loan is a loan, is a loan, is a loan
The first thing financial aid officers must make clear is that all loans are not created equal. While this seems to be a common sense issue, a survey conducted in 2012 by NERA Economic Consulting produced some shocking results that suggest otherwise.
The NERA survey showed that 67 percent of the students, who had both federal and private loans, were not aware there was a difference between them. The survey also said that 65 percent of students misunderstood or were surprised by aspects of their student loans or the process involved in getting one.
The one part of the survey most relevant to financial aid administrators is that 80 percent of the students said they got at least some portion of their information on loans from college counselors or the college’s website.
Something obviously got lost in the translation.
Details, details, details
The NERA survey points out the obvious need for financial aid officers to spend more time with students and parents, explaining the various loans available and what happens when you accept them. Too often, it seems, the school is satisfied that its job is done when it hands the student a loan package that makes it possible to start or continue their college education.
Schools either gloss over or omit altogether explanations about the terms of the loan package, things like how many lenders there are and what the payments will be when the student graduates or leaves school.
“Students get a $5,000 loan and don’t even look at the paperwork that says it’s coming from seven or eight different lenders,” said Rose Smith, who recently graduated from a large state school in Florida with $12,000 in student loan debt. “I had no idea how many lenders were involved in my loan. I thought I was going to write one check a month to cover the loan and found out I’ve got seven banks to deal with. It’s crazy.”
The other detail that slips through the cracks is how much the student or parent is going to owe every month. It’s usually much higher than they expect.
The average student, who took out loans, owes about $27,000 at graduation. If all the lenders involved had the same terms and were expecting repayment in a 10-year period, the monthly payment would be $310. That number would go up if private lenders were involved.
“No one ever told me how much I was going to owe,” Smith said. “I don’t really blame the financial aid people because I never really sat down and talked with them, but somebody should have said something to me.
“It would have been great if there was a class when we were seniors in high school or freshmen in college that educated us on what we were getting into with student loans. That would have helped a lot.”
Responsibility is on whom?
Student loan debt is fast-tracking its way to the forefront of college news.
Smith’s views and the results from the NERA survey aren’t the only evidence that financial aid administrators are going to be asked to do even more to help students and parents navigate the murky waters of student loans.
The Consumer Financial Protection Bureau, a new federal agency, invited comments in 2012 from anyone on the matter of student loans and published 2,000 of them. The most popular complaints include:
- Difficulty obtaining information on amounts owed and paid.
- Parents who co-signed loans not aware they were on the hook if their child defaulted.
- Students unaware of option to consolidate loans.
Granted, the ultimate responsibility lies with the student and parents to read and understand the terms of their loans, but if two-thirds of the people going to your school are taking out loans to make it through, that ought to be the focal point for the financial aid office. The goal in financial aid offices hasn’t changed, which is finding ways to help the student pay for college. There’s just more clutter around that makes the job harder, if that’s possible.
—Bill Fay is a writer for Debt.org, focused mainly on news stories about the spending habits of families and government.