The student loan problem: ‘I’m not going to worry about it right now. I had to take that plunge.’

by Grace

SOME HIGHLIGHTS FROM THE NEW YORK TIMES FRONT PAGE ARTICLE ON STUDENT LOANS

Statistics show it’s a growing problem, but not a crisis.

* About two-thirds of bachelor’s degree recipients borrow money to attend college, either from the government or private lenders, according to a Department of Education survey of 2007-8 graduates; the total number of borrowers is most likely higher since the survey does not track borrowing from family members.

By contrast, 45 percent of 1992-93 graduates borrowed money; that survey included family borrowing as well as government and private loans.

For all borrowers, the average debt in 2011 was $23,300, with 10 percent owing more than $54,000 and 3 percent more than $100,000, the Federal Reserve Bank of New York reports….

Students and their families are often clueless, failing to consider the ramifications of their actions.

Even discounted, the price is beyond the means of many. Yet too often, students and their parents listen without question…

Many students and parents don’t have a firm understanding of the cost of attending college, or the amount of debt they will incur….

“Ultimately with everything in financial aid, from start to finish, the student and their family need to take responsibility and monitor their aid,” Melanie K. Weaver, the director of financial aid at Ohio Northern, said in an e-mail. “With over 3,000 on aid it is difficult for our office of 10 staff members to stay on top of every student.”…

“As an 18-year-old, it sounded like a good fit to me, and the school really sold it,” said Ms. Griffith, a marketing major. “I knew a private school would cost a lot of money. But when I graduate, I’m going to owe like $900 a month. No one told me that.”…

Ms. Potter figured she would have to borrow about $10,000 a year. But the tuition increased every year, and because she didn’t declare a major until her junior year, she needed five years to graduate.

A social worker, she now owes $80,000…..

“Maybe at the time I was a little naïve,” said Mr. Frank, 22, a senior who owes $80,000. “Everyone was like, ‘You can get grants, you can always get loans.’ I wanted to play football really bad, and I hoped eventually I’d get a football scholarship.”…

“I didn’t quite think in terms of money”…

“I kind of ignored the fact that I had to pay all these loans”…

An opaque pricing and financial aid system adds to the problem.

Instead, college pricing is complicated by constant tuition increases, a vast array of grants and loans and a financial-aid system that discounts tuition for most students based on opaque formulas. “No one has a vested interest in simplifying the process but families,” said Mark Kantrowitz, the founder of FinAid, a Web site devoted to explaining college financial aid. “It obscures the price of a college and makes the choice of college not depend on the price but other factors.”

Factors contributing to the growth in student loans

… as with the housing bubble before the economic collapse, the extraordinary growth in student loans has caught many by surprise. But its roots are in fact deep, and the cast of contributing characters — including college marketing officers, state lawmakers wielding a budget ax and wide-eyed students and families — has been enabled by a basic economic dynamic: an insatiable demand for a college education, at almost any price, and plenty of easy-to-secure loans, primarily from the federal government.

Until recently, college administrators might have ignored the problem.

“I readily admit it,” said E. Gordon Gee, the president of Ohio State University, who has also served as president of Vanderbilt and Brown, among others. “I didn’t think a lot about costs. I do not think we have given significant thought to the impact of college costs on families.”

The goal of “college for all” means more taxpayer funds for student loans

To that end, the Obama administration has given out more grants and loans than ever to more and more college students with the goal of making the United States first among developed nations in college completion. The balance of federal student loans has grown by more than 60 percent in the last five years. And in 2007, Congress made sure the interest rates on many of those loans were well below commercial rates; currently, a debate over keeping those lower rates from doubling in July is roiling lawmakers.

While the student loan problem is not a crisis, it is a drag on the economy.

Economists do not predict a collapse of the student loan system, which would, in essence, mean wholesale default. And if there were one, it would be unlikely to ripple through the economy with the same devastating impact as the mortgage crash. Though now larger than credit card and other consumer debt, the student loan balance remains smaller than the mortgage market, and most student loans are issued by the federal government, meaning banks wouldn’t be affected as much.

Still, economists say, growing student debt hangs over the economic recovery like a dark cloud for a generation of college graduates and indebted dropouts. A study of recent college graduates conducted by researchers at Rutgers University and released last week found that 40 percent of the participants had delayed making a major purchase, like a home or car, because of college debt, while slightly more than a quarter had put off continuing their education or had moved in with relatives to save money….

State government spending on higher education has increased, but not as much as in other areas.

In the late 1970s, higher education in Ohio accounted for 17 percent of the state’s expenditures. Now it is 11 percent. By contrast, prisons were 4 percent of the state’s budget in the late 1970s; now they account for 8 percent. Federal mandates and court orders have compelled lawmakers to spend more money on Medicaid and primary education, too. Legislators could designate a greater percentage of the budget to higher education by raising taxes, but there is no appetite for that….

Colleges aggressively market themselves as affordable.

Colleges are aggressively recruiting students, regardless of their financial circumstances. In admissions offices across the country, professional marketing companies and talented alumni are being enlisted to devise catchy slogans, build enticing Web sites — and essentially outpitch the competition.

Affordability, or at least promising that the finances will work out, is increasingly a piece of the pitch.

After all, colleges are not in the business of turning away students.

… And most colleges aren’t much help. Student debt is not their primary concern in the end — the loan money usually gets deposited directly with the colleges, so they get paid either way — and the main job of the admissions staff, after all, is to admit students.

One recommendation:  a standardized form

While there are standardized disclosure forms for buying a car or a house or even signing up for a credit card, no such thing exists for colleges.

For-profit schools are a particular problem, but keep in mind they serve more disadvantaged students.

… Students at for-profit colleges are twice as likely as other students to default on their student loans. Moreover, among students seeking a bachelor’s degree, only 22 percent succeed within six years, compared with 65 percent at nonprofit private schools and 55 percent at public institutions. (For-profit students, however, tend to do better at obtaining associate degrees and certificates.)

Leaders of the for-profit industry defended themselves, saying they were providing higher education for lower-class students that traditional colleges had left behind. “The reality is the type of students we attract have no other opportunity,” said Steven Gunderson, head of a leading trade organization. “We are the ones that provide a path to the middle class.”

It ultimately comes down to the students’ responsibility.

But even with more information, students and their parents seem willing to pay the ever-escalating price of a college degree, which remains the key rung up the ladder of economic mobility.

Denise Entingh, 44, dropped out after two quarters at Columbus State Community College because she didn’t want to wait any longer to get into the nursing program. So she signed on at the Hondros School of Nursing, a for-profit college that advertises “No Waitlist!” on a billboard a few blocks from Columbus State.

Ms. Entingh said she expected to borrow about $45,000 to get a bachelor’s degree in nursing from Hondros, which costs more than three times as much as Columbus State.

“It scares the hell out of me,” she said of her debt load. “But I think it will be all right. I’m not going to worry about it right now. I had to take that plunge.”


Whew!  After all that, I may not want to write anything else about student loans for the next six months!
(But I probably will.)

* CORRECTION:  The original article misstated the percentage of students who had borrowed as 94%.

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14 Responses to “The student loan problem: ‘I’m not going to worry about it right now. I had to take that plunge.’”

  1. Thanks for pointing that out! It turned out to be an error, which is noted at the at the bottom of the article. I made the correction in my post. However, the number is hard to quantify. Private, non-reported loans are not included in the 2/3 number.

    http://www.insidehighered.com/news/2012/05/18/what-we-dont-know-about-college-student-debt

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  2. “With over 3,000 on aid it is difficult for our office of 10 staff members to stay on top of every student.”…

    These days, that could be automated, couldn’t it?

    “But the tuition increased every year, and because she didn’t declare a major until her junior year, she needed five years to graduate.”

    Didn’t declare a major until her junior year!

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  3. Amy – I hear arguments about how colleges could gain efficiencies and save money by automation, and I don’t doubt it’s true. I’ve certainly seen it firsthand at the K-12 level, with one example being recording grades. Not only would more automation in assessments save money, but it could be an important improvement in raising achievement levels. The roadblocks preventing change include initial investment in technology and training, as well as union opposition.

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  4. “The quote about the 10 people for 3000 students refers, I think, to personal face to face advising. And yes, that is hard for 10 people who are also responsible for lots of other things.”

    How about a text message that says “Your borrowing level is not manageable with your projected earning power. Make an appointment for counseling.” If they ignore that, it’s on them.

    Of course, deep down, I suspect that encouraging over-borrowing is an important part of the business model of these expensive but not very prestigious schools. Currently, the only thing those colleges risk is embarrassment when they get featured because one of their graduates is in financial hot water.

    “…half the time the phone number of record is wrong.”

    I suspect my husband’s college has that more or less under control. We get automated tornado warnings by landline and cell phone, as well as warnings when fugitives are loose on campus (that’s only happened once). We also get fast email reports of crime on and off campus (a lot of these are sprees, so quick notification is important). Perhaps because of the well-known college shootings, the college really wants to be able to get hold of everybody instantaneously. We also had a funny (but at the time scary) incident a couple years back where we discovered somebody’s car parked behind our house in the driveway. Initially, we thought somebody might be inside, burgling our house, so we got campus security. They showed up and called the number for the student’s car (they’ve got all that in their computer system). The wife showed up right away, very apologetic and embarrassed, because her husband had left their car in our driveway.

    Anyway, we’re on a huge college campus with students in the five digits. I don’t believe that that small college can’t automate notification for students who are off-track. And in any case, the point of private schools is supposed to be that they offer more hands-on, personalized attention.

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  5. “The students do not pay attention.”

    I can see how that would be true for student loan information and many other notifications. However, without parents or someone else to co-sign, students are usually very limited in how much they can borrow. The PARENTS should be paying attention. I know many are inexperienced with matters having to do with college financing, but I don’t think that’s a valid excuse.

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  6. The parents should be paying attention, but colleges and universities are not allowed to send them notifications about anything because of FERPA. It is possible that this may be allowed for parents who have co-signed, but I bet it is difficult to figure out who those students are. One thing I have seen with the systems that manage student accounts, grades, registration, etc. is that it tends to not be very flexible or customizable. Sadly, that tends to be true in general with largescale automated systems.

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  7. So true about FERPA. I had a somewhat comical experience with my son’s school, trying to get generic information about what information they were not allowed to release. They were so secretive, they wouldn’t even tell me what they couldn’t tell me!

    But, a parent who co-signs a loan should be aware and stay aware of that, even if it is bothersome to do.

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  8. “So true about FERPA. I had a somewhat comical experience with my son’s school, trying to get generic information about what information they were not allowed to release. They were so secretive, they wouldn’t even tell me what they couldn’t tell me!”

    Very funny!

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