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.

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Future Earnings

As a student affairs professional and higher education advocate, I am exhausted by recent events discounting the value of a college degree. Yes, I am looking at you, Mr. Stanford Educated Peter Thiel. Thankfully, there are enough critical thinkers in the media who are willing to defend the value of education from stories such as:  Debt-Laden Graduates Wonder Why They Bothered With College.

Why the Media is Always Wrong About the Value of a College Degree

The Long, Sad History Of ‘College Not Worth It Anymore’ Articles

Does College Still Pay?

And my logical thinking favorite:

Where is the Best Place to Invest $102,000–In Stocks, Bonds, or a College Degree?

…the recession has not fundamentally changed the math: although a college degree has upfront costs, it is important to remember that it is an investment that pays off over time.

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.

Little things

Some days it’s the little things. Like discovering that you packed extra underwear when weather delays your travel leaving you stranded far from home. Or when you get an email out of the blue from a student you have not heard from in a while.

I’m writing to thank you and the Hixson program for all that you have given me.  Not just the class, the opportunity to be a seminar leader or the scholarship money, but also the staff. Yesterday, I was in the student lab doing a little homework when your graduate assistant came in and I had a really great talk with him, just about how our semesters were going.  Anyway, it makes me really appreciate the program and especially the people surrounding the program.

 

image by Charles M. Schulz

(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.

Oh, The Places You’ll Go



Congrats to our new Hixson Scholar graduates and everyone else celebrating their academic achievements this month. Special props to one of our 2004 award recipients, Tyler Dohlman, who just completed his DVM.



But the unfortunate, yet truly exciting thing about your life, is that there is no core curriculum. The entire place is an elective. The paths are infinite and the results uncertain.

~Jon Stewart (2004 commencement address to The College of William and Mary)



So…get on your way!




photo credit Christopher Gannon/TheRegister