An increasing number of students nationwide are taking out loans to pay for college. The problem is, how does a new grad land a job with a decent salary in this economy so she can start making reasonable monthly payments?
In Colorado and elsewhere, financial aid advisers are scrambling to handle student questions about restructuring or deferring debt payments as growing numbers of students apply for financial aid.
And while Colorado’s ranking in terms of student debt load looks good compared to other states, there are troubling financial aid trends here as well.
Colorado ranks 40th of 49 states in terms of average college student debt load with the average debt being $18,321, compared to the District of Columbia, which has an average student debt load of $29,793, according to the Project on Student Debt, funded and produced by the Oakland, Calif.-based Institute for College Access and Success.
The centennial state ranks 38th of 49 when you look at the proportion of students carrying debt for school – or 50 percent. Since the data is self-reported, many of the state’s private colleges did not participate in the study. Still, the data provides an important snapshot of the nation’s student debt load.
Northeastern states continue to be disproportionately represented among the “high debt” states, while those in the West typically fall in the “low debt” category. The report attributes this to the fact that northeastern states have more students attending private colleges with higher-than-average tuition for both public and private colleges, while western states have more students attending public colleges with lower-than-average tuition.
While tuition increases get people talking about how they’ll pay for college, it isn’t usually tuition that is the breaking point for many families but other costs such as housing, food and books. That’s especially true in Colorado where tuition at public colleges for residents remains relatively affordable.
“Students are borrowing more and more every year,” said Edie Irons, communications director for the Institute for College Access and Success. “It has been a trend for the last 15 to 20 years.”
Economy worsens debt trouble
Irons and other experts say tuition hikes and dwindling state support are exacerbating a problem begun when federal guidelines for financial aid eligibility were loosened in the early 1990s. With low interest rate loans, people borrowed as much as they could – not because they had to but because it was the best source of funds.
“Pell and state grants often have not kept pace with rising tuition,” Irons said. “Families are filling in the gap with student loans. Two-thirds of college graduates leave school with some amount of student loans. The average is over $23,000. It’s a serious burden.”
A September 2009 Wall Street Journal article noted that federal student loan disbursements in the 2008-2009 academic year grew a whopping 25 percent over the previous year, to $75.1 billion. Couple that with the fact that unemployment rates for new college graduates were the highest on record in the third quarter of 2009 and a grim picture emerges.
According to a 2009 report prepared for the Colorado Commission on Higher Education, a 2008 graduate of the University of Colorado at Boulder would have to earn $35,525 right out of the gate to begin making reasonable monthly payments on the school’s average student loan debt of $21,642. Yet of all the state’s baccalaureate degree-granting schools, CU-Boulder actually has the lowest percentage of students taking out loans, or 46 percent. That’s compared to a high of 77 percent at Adams State College in Alamosa, which reports an average student debt load of $18,634.
CU-Boulder Director of Financial Aid Gwen Pomper said overall ratios and numbers have remained pretty consistent in recent years, with one notable change.
“For students with the least resources, their debt is actually going down,” Pomper said. “We’ve increased non-loan aid to that group, the needy group, and we’re always looking at financial aid models trying to make sure we give as much aid to low-income students.”
“We’ve seen that trend for two consecutive years.”
Metro students shun financial advice
Fort Lewis College in Durango reported the state’s lowest average loan debt of $17,891. CU-Denver reported the highest at $23,327. Metropolitan State College of Denver reported that 76 percent of its students carry loans with an average loan debt of $22,650 – up from $19,502 in 2005 and up from $21,475 in 2008 when Metro grads would have had to earn $35,371 to make reasonable payments on it.
“We have a lot of students who are older, they have families,” Cindy Hejl, Metro’s financial aid director. “They are needing the loan to help support the family – paying rent and things like that.”
“When the economy is bad and the choice is paying for food for family or paying off college debt, you’re going to pick food for your family.”
Metro’s mature student body doesn’t necessarily want help negotiating their finances, she said, but the school is trying to get involved anyway. Metro’s student loan default rate has climbed to 10.9 percent, which negatively affects today’s first-time borrowers because new rules are forced upon them when a default rate climbs over 10 percent.
“It gets to be a touchy situation,” Hejl said. “They don’t want us to be involved in determining the amount of the loan they should be taking out. We do tend to send them e-mails making sure they’re aware of what their loan debt is, what their monthly payment will be when they do graduate.”
Metro is experiencing a surge in financial aid applications and in enrollment, which Hejl ties to the economic downturn and President Obama’s push to get more students to pursue post-secondary education.
The school also experienced a 300 percent increase in income adjustments related to loans in fall 2009 compared to the prior year, which is typically related to loss of income. Some 12,920 Metro students have borrowed $94 million in Stafford loans this year, compared to 11,450 borrowing $80 million in 2008-2009, and summer loans haven’t even been calculated yet. The school has disbursed $26.5 million in Pell grants to 8,309 students so far this year, compared to $18 million given to 6,560 last year and there are still six months to go.
The same CCHE report found that a 2008 graduate would have had to land a job paying $28,847 upon graduation from Morgan Community College to be able to make reasonable monthly payments on the school’s average student loan debt of $14,389, the highest average loan debt among Colorado’s associate’s degree-granting, mostly two-year schools. Conversely, Morgan has among the lowest percentage of students taking out loans – or 42 percent. That compares to a high of 72 percent at Pueblo Community College, where the average debt upon graduation in 2008 was $11,818. The lowest student loan debt among public two-year schools was Northeastern Community College at $6,919.
Debt load climbs at Red Rocks
At Red Rocks Community College, a 2008 grad would have had to earn $25,294 to make payments on the school’s average debt of $10,529. As of December, that figure has climbed to $12,102, said Linda Crook, Red Rocks director of financial aid, advising and recruitment.
“I’m not at all surprised, based on the economy,” Crook said. “If you look at the chart that goes back to 2005, it’s gone up almost $4,000 in four or five years. Previously, students borrowed enough to buy a computer, buy books and pay tuition. Now they’re borrowing as much as they can to live on.”
Crook said an increasing number of Red Rocks students are going for the maximum allowable in loans, which is $9,500 per year at Red Rocks.
Her office spends a lot of time trying to convince freshmen not to get the full amount in one lump sum at the beginning of the year.
“They’re worried about today and tomorrow and next month’s rent” and not necessarily next semester, Crook said.
Crook is also concerned about the proliferation of alternative or private loans. In the past eight years she said Red Rocks students borrowed $40,000 in total through banks rather than the government. That figure has climbed to $500,000. She sees loan default rates climbing right along with loan applications. The percentage of Red Rocks students taking out loans rose from 49 percent to 56 percent between 2008 and 2009.
At the same time, some state aid, such as the $500,000 in merit aid that Red Rocks used to receive from the state, has dried up. Work study dollars are not keeping pace with student demand to the point that Red Rocks had to alert about 55 students last week that their employment would be terminated in a matter of days – money those students were counting on for spring semester.
“It’s a big cauldron of mess you’re stirring all the time,” Crook said. “We’re all very concerned about it. We’re trying to do some default management, and offering (financial counseling) sessions to students. We all have that stuff on our Web sites.”
As for private schools, the data is harder to come by – but the CCHE did find that first-year students at private schools borrowed about 69 percent more than those at public colleges. In the public sphere, average fist-year student loan debt ranged from $3,205 at the Community College of Denver to $5,492 at CU-Boulder.
Among 16 privates schools the average debt load for first-year students ranged from $4,924 at Intellitec College in Grand Junction to $10,017 at Westwood College, formerly known as the Denver Institute of Technology.
Angela Baier, spokeswoman at CollegeInvest, said overall loans to students in school now hit a high last spring and are now hovering at $283 million. The agency has seen a 1 percent increase this year to 14.2 percent of students deferring payment on $240 million in loans. The default rate on those loans is 12.5 percent, which is actually down 2 percent from last year. Baier attributes the drop to more students deferring or going into forbearance on their loans.
“We are being much more proactive by getting to borrowers and letting them know the tools that are out there,” Baier said. “Repayment isn’t going up, but they’re using appropriate tools that keep them out of trouble.”
Some fixes on the way
There are bright spots in the bleak landscape, such as President Obama’s increases to federal Pell grants and new repayment options, but some of those fixes don’t come on-line for a few years. The part of the federal stimulus program that links Pell increases to inflation doesn’t start until 2013. And the expansion of income-based, federal loan repayment plans will only benefit people taking out loans after July 1, 2014, said Irons, of the Project on Student Debt.
But one new program began in July. It allows graduates who work in public service, which includes non-profit organizations, the military or public agencies, to have their loans forgiven after 10 years, rather than 25 years for those in the private sector, Irons said.
Trickier to handle are private student loans since they lack repayment flexibility and often can have interest rates of up to 15 to 20 percent. In 2008, about 14 percent of all undergrads took out private loans.
“We don’t know as much as we need to know about that,” said David Longanecker, president of the Western Interstate Commission for Higher Education and a financial aid expert. “I was very concerned about that prior to this (market) crash.”
Federal loans remain the primary way people borrow for college so keeping an eye on student debt and accessibility are key.
“As long as costs are increasing and people are borrowing more, it does have a negative effect on college access and affordability,” Irons said. “At the same time, a college degree is essential for even a shot at a comfortable middle class lifestyle.”
For information on the latest federal programs designed to help students pay off debt, such as income-based repayment, click here.
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Percentage of students with debt in 2009
Adams State College 70%
Colorado School of Mines 74%
Colorado State University 66%
Fort Lewis College 67%
Mesa State College 73%
Metropolitan State College of Denver 76%
University of Colorado-Boulder 47%
CU-Colorado Springs 69%
University of Northern Colorado 69%
Western State College 74%