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Why colleges should care about student loan debt

Examining the institutional case for getting national student debt numbers under control
University Business, September 2013

Student loan debt is topping $1 trillion, and borrowers aren’t the only ones with reason to be concerned. While higher education leaders aren’t responsible for the loans, they also have a stake in getting rising debt and default levels under control.

Megan McClean, director of policy and federal relations for the National Association of Student Financial Aid Administrators, says the first reason for concern about debt is simply that administrators care about students and want them to succeed.

Another reason is that, when students are taking on more debt than they can manage, there’s an impact to the bottom line.

“If schools have too high a cohort default rate, particularly for several years in a row, they can actually lose eligibility to receive Title IV funds,” McClean says. Higher ed leaders are joining the debt crisis conversation, looking at ways to protect institutions from the risks of runaway defaults and help students to better manage loan debt.

An evolving perspective

“A year ago, we really had not made student debt a high-priority issue—something that the university system or even the campuses were responsible for,” says Joseph R. Holliday, assistant vice chancellor for student success initiatives at the Oregon University System. “We were going along thinking, ‘That’s the students’ problem.’ ... But we’ve really evolved in our thinking in just a year, to saying we really do have a role in this and we need to play a stronger role.” System officials have invited various political and community leaders, and administrators from higher ed institutions throughout the state, to an October symposium on affordability and student debt at Oregon State University.

“We feel that, in Oregon, and obviously in other states as well, we’ve reached a tipping point of affordability for students,” Holliday says, noting that both tuition and the level of student debt have been rising year over year. “We wanted to take some action to identify and promote effective practices to deal with the issue.”

One of the guest speakers at the symposium will be Scott Kelley, executive vice chancellor for business affairs for The University of Texas System and chairman of its Debt Reduction Task Force. In December 2012, the task force released the report “College ‘Credit’: Reducing Unmanageable Student Debt and Maximizing Return on Education” (available at It’s a title meant to invoke the idea of MyEdu founder Michael Crosno—whose website helps college students connect with employers—that the cost of a college education, including debt, should be weighed against the benefit of a degree.

Kelley says that concerns about debt have yet to impede the UT System’s ability to recruit new students who might be worried about their ROE, or return on education, as MyEdu terms it.

Instead, the task force had a motivation other than its own enrollment goals for taking action on the issue—the students themselves.

“The problem from our standpoint is the kind of moral obligation that we have to ensure that once they’re here they will ultimately be successful,” Kelley says.

But is it a crisis?

Despite their concerns, both Kelley and Holliday are hesitant to label growing student debt as a “crisis,” and they are quick to point out that a well-managed loan can be a valuable resource for obtaining a post-secondary education.

“There are clear and truthful examples of students who are in very deep debt, in the $50,000 to $60,000 range, who don’t have a job upon graduation that would realistically be enough to help them pay that debt off,” Holliday says. “There are also students who don’t finish college and have high debt, who have even less ability to pay it off. So those cases are real.

“But ... if you look at average student debt, what percent of students are actually borrowing and how much they’re borrowing, the majority of student borrowers are not in trouble.”

Median student debt, which is lower than the average student debt, provides a more accurate picture, he adds.

To Jenny Rickard, vice president for enrollment at the University of Puget Sound, a private liberal arts school in Tacoma, Wash., the issue has more to do with public relations than finance.

“I have two main worries about it in the macroperspective,” Rickard says. “One is that students read the headlines and assume that the ‘crisis’ applies to all institutions and all students equally, and as a result rule out places that could be really good options for them. Or worse, they might even rule out college completely.” Nevertheless, Rickard says, her university has, so far, been able to reach its target recruitment and enrollment numbers.

Proactive approach

The members of the UT Task Force, which include undergraduate and graduate students, senior administrators, and industry financial aid experts, wanted to analyze the factors that lead to unmanageable loan debt and find ways to intervene.

“One of the things we are exploring now is what we can do to try to triage students, if you will, once they are here, to understand those who might be most at risk,” Kelley says. “The challenge with these programs is scale—how to apply them to hundreds of thousands of students, with limited resources. If we could try to focus our efforts on those students most at risk, we think there is some benefit.”

The group plans to help students create education business plans that tie their academic choices to their life goals and considers the resources students will use to fund their education. UT administrators also plan to share information about the potential financial return on various college majors and career fields, so students can better determine how much debt is a wise investment, Kelley says.

All student borrowers in the U.S. are required to have counseling before they receive loans and again before they leave school, explains McClean from NASFAA. In addition, many colleges and universities now incorporate lessons about debt management into freshman seminars or workshops offered through the financial aid office.

“None of these can be mandatory, because schools can’t require that students attend these additional steps to receive their loans,” McClean says. Patricia Thompson of State University of New York System, another speaker at the upcoming Oregon symposium on student debt, is responsible for a new initiative called SUNY Smart Track. Under the program, students will be taught financial literacy skills and administrators will keep in more regular contact with all students receiving aid. The program is rolling out on six SUNY pilot campuses this fall.

“A couple of years ago, we looked at the cohort default rates at our campuses, and most particularly at our community colleges,” says Thompson, assistant vice chancellor for student financial aid services at SUNY. “They were concerning to us because we saw that there were some campuses that were struggling, and we wanted to see what we could do to help them and to work as a system toward a common goal of helping our students.”

The UT Task Force found a need for greater transparency in informing students and their parents about the financial impact of the loans they acquire for school. That kind of transparency is a priority at Puget Sound, Rickard says. “We try to make it clear to students what their four-year debt obligation will be once they graduate. We also try to help them understand what that would mean from a monthly payment perspective.”

(Related UBTech presentation: Survey on Enrollment Plans and NPCs.)

At Eastern Connecticut State University, Edwin B. Harris, director of enrollment management, says administrators are making a special effort to encourage students to submit their financial aid applications early, so that they have a better chance of getting grants and scholarships. “We talk with them and their families about how to apply different types of aid to their outstanding account, explaining that loans ought to be among the last resorts.”

Sonya Stinson is a New Orleans-based freelance writer.
Coming in October: The second part of this series, “Debt Lessons,” will cover financial aid literacy programs as a 
response to the student debt crisis.