Presidential Agenda

My university named a new president last week and I was excited to learn that he has goals similar to mine in the area of decreasing student debt. This is a topic that is of great interest for me as I counsel first-generation college students, many of whom borrow large amounts of money through federal, institutional and private sources to meet expenses. As we reside in a state where 85 percent of the state’s need-based grants support students enrolled in private, not-for-profit colleges with only 6 percent supporting students enrolled in public colleges and universities, change will not be easy

It’s increasingly difficult for the middle class to afford a high-quality public education. That’s a huge concern of mine. Our long-term goal would be that any qualified Iowan could graduate debt free. That’s the direction we want to be going.  ~Steven Leath, president-elect

More on the student debt challenge:

Student Debt: No new car, caviar, four star daydream

Student Debt continued: Still no caviar

Student loans of interest

It’s not only a national debt crisis

Money, money, money… Must be funny…

Money, money, money… Must be funny…

In the 2009 fiscal year, the default rate on student loans climbed from 7 percent to 8.8 percent, over the previous fiscal year, according to a U.S. Department of Education report released today.

Of the 3.6 million student-loan borrowers whose first repayment period was between October 1, 2008, and September 30, 2009, about 320,000 people defaulted before September 30, 2010.

You can review information on the national student loan default rate and rates for individual schools, states, and types of institutions at the Federal Student Aid Data Center.

It’s not only a national debt crisis

Helping students understand how to effectively manage student loan debt is a bit of a project for me. I spend much of my professional work counseling first-generation college students, most of whom have high financial need. I have shared my views on the student debt crisis here, here, and here.

Andrew Hacker and Claudia Dreifus present some excellent alternative plans for lowering student costs in higher education by encouraging students to choose community colleges and state institutions.  And although I disagree with their portrayal of unscrupulous financial aid officers when describing the individuals at my own institution, I do not doubt that they are out there.

The next subprime crisis will come from defaults on student debts, starting with for-profit colleges and rising to the Ivy League. The parallels with housing are striking. In both, the written warnings aren’t understood, especially on penalties and interest rates. And in both, it’s assumed that what’s being bought will rise in value, in one case the real estate, in the other the salaries which will accrue with a degree. One bubble has burst; the second is already losing air.

Treating students like an ATM machine

Inside Higher Ed posted another feature on the prospect of eliminating subsidized student loans and their relation to the federal deficit. Is there sense in using students seeking higher education as a revenue generating source for the federal government? Shouldn’t we all strongly object to shifting funds from student aid toward deficit reduction?

The federal government is making a lot of money on students and on parents. There’s a risk of almost treating students like an ATM machine.  ~Becky Timmons, assistant vice president for government relations, American Council on Education

Student loans of interest

Helping students be aware of the impact of student loan borrowing to finance college is a bit of a pet project of mine and I have written about it here and here.  Don’t get me wrong, I think a moderate investment in student loan to obtain higher education is a very wise investment. Moderate being the key word in that statement.

Inside Higher Ed profiled a proposal made during recent Congressional discussion on the federal deficit that would require students to pay the interest on student loans while they’re enrolled in college, a change that would save the government $40 billion over 10 years.

Students who borrow the maximum amount of subsidized loans, $23,000, and take six years to graduate would owe $5,000 more by graduation and $9,000 after a 20-year repayment period.  ~Pauline Abernathy, Institute for College Access and Success.

National Association of Student Financial Aid Administrators president Justin Draeger said he strongly objected to the idea of shifting funds from student aid toward deficit reduction but finds it a better alternative than cutting the Pell Grant which would have more impact on student access to college.

When debt attributed to private and federal student loans is set to surpass $1 trillion dollars in the United States and already contributes to the ballooning national debt, isn’t adding $5,000 more debt to the average student loan borrower government-speak for robbing Peter to pay Paul?

Shouldn’t we all strongly object to shifting funds from student aid toward deficit reduction?

Student Debt continued: Still no caviar

I have frequently referenced a paper for a higher ed finance class this semester that was featured today in a Los Angeles Times article on the big picture of student debt.

The Institute for Higher Education Policy study of federal student loans, Delinquency: The Untold Story of Student Loan Borrowing, suggests that a majority of students struggle to repay their loans.  As the cost of a higher education has increased exponentially over the last couple of decades, policymakers have relied solely on default rates as a measurement tool.  An institution’s default rates can impact their ability to provide loan borrowing to students.  This study suggests that default rates alone provide an incomplete analysis, as they exclude borrowers who have difficulty repaying their loans but who avoid default.

This study consists of a review of federal student loans only, not private lending.  It focuses on the nearly 1.8 million borrowers who entered into repayment on loans obtained through the Federal Family Education Loan Program in 2005 during their first five years of repayment.  It details the rates at which borrowers entered into default; into deferment, a temporary suspension of loan payments for re-enrollment in school, unemployment, or economic hardship; forbearance, temporary suspensions of a borrower’s payments because of financial difficulty; and delinquency, or late payment on a loan.

Overall, only 37 percent of the borrowers in the study managed to repay their student loans throughout the study period without postponing payments or becoming delinquent. Another seven percent entered into deferment because they re-enrolled in school.  A majority, 56 percent of borrowers, had difficulty making timely payments on their loans.

Of the 56 percent with repayment difficulty, 15 percent of borrowers used deferment and forbearance to postpone their payments and avoid delinquency.  Overall, 41 percent of the student loan borrowers became delinquent or defaulted.  Twenty-six percent of borrowers became delinquent, but did not default.  Approximately 15 percent of borrowers became delinquent and defaulted.

Delinquency and default have serious consequences for student loan borrowers and can affect credit scores and the ability to obtain mortgages and auto loans, and the terms upon which those loans are offered.  Borrowers who default face even more severe consequences, including wage garnishment, withholding of income tax refunds or Social Security benefits, the turning over of the defaulted loans to collection agencies, and liability for collection and court costs.

There were important distinctions made between borrowers.  Undergraduate and graduate borrowers who left school without graduating were far more likely to become delinquent or default than those who graduated.  Graduate students were far more likely to make timely payments without using deferment or forbearance and less likely to become delinquent or to default than undergraduates.  Students at public four-year and private, nonprofit four-year institutions were more likely to repay their loans on time without resorting to deferment or forbearance and less likely to default on loans.  Students at public and for-profit two-year institutions and for-profit four-year institutions were the most likely to experience repayment difficulty.

Student Debt: No new car, caviar, four star daydream

I have been reading a lot on student debt recently, a topic that is of great interest for me as I counsel first-generation college students. My state and institution have among the highest debt rates in the country, not a statistic to celebrate.

Student Debt and the Class of 2009 is the fifth annual report from the Project on Student Debt.  It includes cumulative loan debt of students from public and private nonprofit colleges and shows that the debt level of students who graduate with student loans continues to rise with averages from $13,000 to $61,500. Low debt states are typically in the West or Southern states. High student debt rates are concentrated in the Northeast with Iowa, Minnesota, and Alaska in the top tier as exceptions. Iowa is fourth in the nation for average debt of $28,883 and second in percentage of graduates with debt, at 74%.

A variety of factors contribute to varying debt levels including cost of tuition and fees and financial aid policies of the individual institution. Generally, higher tuition is found at private colleges, but some privates, such as Cal Tech and Princeton, are also the first to institute policies of no-loan or reduced-loan for low- and middle-income students. Student debt figures are not inclusive in that not all colleges reported figures for average debt and percent with debt. In actuality, the debt figures could be and are likely much higher.

Several issues influence the accurate collection of student debt data and are recommended for improving the scope this information. These include a lack of a comprehensive annuals source of data, data on private loans, and lack of reporting on repayment terms and debt-to-income ratios for graduates in repayment.

Student Debt and the Class of 2009 reports only federal loan data. When you consider that debt attributed to private and federal student loans has surpassed $884 billion dollars in the United States and contributes to the ballooning national debt, the effectiveness and equity of relying on student loans to finance the cost of a higher education becomes paramount to all. Lawmakers and institution officials must carefully consider the impact of their tuition decisions and educate the student population as to their debt responsibility.

(Go to) Class Investment

A student of mine missed class last week. After some checking, I found that a family emergency resulted in his missing at least two days of classes. And this was just the second week of the semester.

Lynn O’Shaughnessy discussed the phenomenon of students voluntarily missing class and featured the Skip Class Calculator on her blog. The calculator helps a student determine the cost of missing a class based upon class meetings per week, attendance history, and upcoming exams. A cursory glance at the Skip Class tool found one factor missing; the money invested in missing a class.

Running an estimate based on the full-time cost of attendance at our university, an in-state resident student invests $53 to attend an hour of class. For non-resident students, the amount increases to $86 an hour. Miss 10% of classes for a semester and a student can easily waste a grand or more.

At an institution where student loan debt at graduation is among the highest in the nation and as electronic course attendance systems become commonplace on college campuses, skipping class is pouring money down the drain.

College Students & Money: No new car, caviar, four star daydream

It’s handy having a international expert on financial literacy around when counseling first-year college students about managing their resources. Iowa State professor Tahira Hira is recognized for her work on consumer spending including debt and bankruptcy. As our graduates leave campus with some of the highest student loan debt in the nation, I feel an obligation to discuss personal finance during our first-year seminar.


Dr. Hira’s three main principles for college student financial well being:
  • Live within your means.
  • Spend less that you make.
  • Be mindful of borrowing, including consumer credit or students loans.
Spending plans are key to managing finances and Hira shares these tips for students:
  • Give yourself an allowance that fits your budget.
  • Balance your checkbook regularly.
  • Leave your credit cards at home to avoid impulse buying.
  • When going out for an evening, take only as much cash as you can afford with you.
  • Eliminate casual shopping.
  • Reduce stress with exercise, hobbies, or community service; versus shopping.
Our financial aid office partners with a great online tool called CashCourse that offers financial planning tools and economic tips. I utilize CashCourse for a personal finance assignment in our seminar course.

Declining access to higher education?

I am fortunate to administer an endowed scholarship that flourishes even in these financial times thanks to careful foundation oversight and recent gifts from our generous donor. It is a partial tuition scholarship and most students also receive significant institutional and federal aid. So, I have concerns when I read that many scholarship providers are pulling back support.

Full cost of attendance at my university this fall (tuition, fees, room, board, books/supplies, personal expenses) is $18,370. The average financial need (cost of attendance minus expected family contribution) of my new class of 100 scholarship recipients is greater than $15,500. More than half of the students have need within 1% of the full cost of attendance.

With less money thrown off by endowments and contributed by donors, scholarship providers must make difficult choices. Should current scholarship recipients have their awards renewed, at the expense of new applicants? Should scholarship amounts be reduced so that the same number of students can benefit? Should the size of awards be protected, but their number cut? ~Jonathan D. Glater

Access to higher education becomes even more important in challenging economic times. Here’s hoping that scholarship providers can keep their focus on priorities.