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Financial Aid

Less Debt, Easier Payback

How to curb student debt and better manage repayment
University Business, May 2013

As student loan debt levels and default rates in the United States continue to climb, consumers remain concerned about the accessibility and affordability of higher education. The average overall loan debt for bachelor’s degree recipients is fairly manageable (about $26,500 for the class of 2011, according to The Institute for College Access and Success). Still, students and families are shouldering a greater portion of the cost of college through loans than they ever have before.

While student loan over-borrowing and climbing defaults are certainly problematic, a number of other factors can compound student indebtedness. That’s one major finding of a task force of financial aid professionals convened by the National Association of Student Financial Aid Administrators. What should be manageable amounts of borrowing can spiral out of control when:

  • students are not academically prepared for college,
  • repayment tools are not readily accessible, 
  • schools have little to no control over how much students borrow, or 
  • the borrower has had inadequate financial literacy counseling.

The Task Force on Student Indebtedness studied the current trends on these issues, and a report released in February offers ideas for improving the system for students and institutions throughout all stages of borrowing, including pre-borrowing, in-school, and repayment.

“Student loans have become the primary source of funding for higher education, but they exist today as an amalgam of programs that were created over time and don’t necessarily fit well together or make sense to families,” explains task force member Rick Shipman, director of financial aid at Michigan State University. “The financial aid community believed it was time to reexamine the educational loan environment and recommend changes that would modernize these loans for today’s world.”

Made up of 17 experienced financial aid professionals from a diverse cross section of institution types, the group “was committed to thinking outside the box in considering the various issues and how the program or programs could be improved,” says Anna Griswold, executive director for student aid at The Pennsylvania State University and part of the group.

Avoidable Debt

Based on research and discussion, the task force developed eight recommendations applicable to the various stakeholders in borrowing—students, institutions, the federal government, and private lenders.

All too often, student borrowers opt to take the full amount of loans available to them when they could actually get by with less, leading to painfully high—yet avoidable—debt levels. Granting institutions the authority to limit borrowing based on institutional, degree, or program level, could deter excessive borrowing.

“I found many of my students borrowing the maximum—up to their cost of attendance—because they would rather have the funds available ‘just in case,’” shares Yara Santana, director of financial aid at The John Marshall Law School in Chicago. Another task force member, Kevin Jensen, who is financial aid director at College of Western Idaho, adds that “we need to find a way to prevent over-borrowing, while at the same time protecting equity and access to higher education. Moving forward on this issue in the right way will, in my opinion, enhance the effectiveness of all of the smart decisions that need to be made on the other recommendations.”

Federal ‘To-Do’ List

The task force also urged the federal government to consider how to better target subsidies. What would it look like to have income-based repayment be the automatic repayment plan for all borrowers?

Other recommendations included making the interest rate on student loans variable based on current market conditions, eliminating loan origination fees, bolstering underwriting standards for Parent PLUS loan borrowers, and transitioning the Department of Education’s Financial Awareness Counseling Tool (FACT) into an entrance and exit counseling module that would satisfy legislative requirements.

With some adjustments, FACT could be a way for students to educate themselves about their loans throughout their higher education cycle, explains Dan Davenport, director of student financial aid services at the University of Idaho. “Being able to view their actual loan data while they are attending keeps them aware of their loan debt obligations.”

A Starting Point

Task force members are optimistic that these suggestions could serve as a starting point for meaningful policy discussions surrounding borrowing and student loan reform.

According to NASFAA National Chair Ron Day, director of financial aid at Kennesaw State University (Ga.) and part of the task force, these recommendations are a step toward “assisting policymakers in determining next steps to address issues related to student borrowing and the ability of institutions to assist with adequate and proper counseling of students.”