For the past 30 years, the student debt issue has been slowly simmering. Government loans quietly edged out grants as the primary form of financial aid, while college tuitions continued their rise. All the while, we piled debt on to students without adequately preparing them to manage it.
Now, student debt has come to a boil. An astonishingly high 30% of the 37 million Americans with student loans are behind on payment, with broader implications for our economy. For the first time in the past decade, individuals with student loans are less likely to own a home or car (and, presumably, give back to their colleges) than those without student loans. The Federal Reserve and the Consumer Finance Protection Bureau are the latest voices to join the rising chorus that student debt is a roadblock to the wider economic recovery. Many believe we are fast approaching the tipping point where a debt-financed college education will become more hindrance than help, if students find themselves worse off financially after college than before.
Higher education can no longer whistle past the graveyard of student debt. For far too long, we in the higher education and student loan business have fallen back on the same tired old defenses: Average student debt is only $27,000, the cost of a new car; very few students actually leave school with loans topping $100,000; and the majority of students today repay their loans with no problem (an assertion because we have no hard data beyond the cohort default rate). Recent Federal Reserve data shows 30% of borrowers are 90+ days past due (delinquency is defined as being behind on payment 60 to 270 days; at 270 days of non-payment, the loan is officially in default status.) But that doesn’t mean the other 70% have “no problem” paying off their loans. How many student borrowers have to choose between making their student loan payment or being late on their rent every month? Or how many must make gigantic budgetary sacrifices to stave off student loan delinquency?
Critics of student loan “sensationalism” point out (rightly) that when we let the tales of coffee baristas and taxi drivers with $100,000 in student loans dominate media headlines, we run the very real risk of scaring students out of college. But not focusing on the debt issue may scare more students. Sweeping student debt under the rug with our cavalier keep-on-moving-nothing-to-see-here attitude isn’t doing our students—or us–any favors.
Students are already feeling enormous waves of fear and dread when it comes to their debt. In the development of our student debt awareness campaign, “Face the Red,” my organization interviewed thousands of students across the country. What we learned is that students are incredibly anxious over owing thousands of dollars in loans; that they feel paralyzed and overwhelmed; and they don’t know where to turn for relief. Do a scan of student debt in social media conversations and you’ll find similar results: feelings of panic, anger and resentment abound.
The real shame is that we let it get to this point. Student debt should never have reached horror-story proportions. After all, as we in the biz have long pointed out, there are multiple programs in place for borrowers to make the debt a more manageable burden. Unfortunately, that message isn’t getting through to the target population.
So we have to face facts: Students’ perceptions right now make up their reality, and currently many perceive their debt as a suffocating monster they can’t escape. Slowly but surely, that perception will impact students’ decisions on whether to take on debt to attend college. As the recent Boston Globe Magazine article “Why Some Small Colleges Are in Big Trouble” noted: “After years of seemingly being willing to pay whatever colleges sought, students and their families have become intensely price-conscious. As tuition continues to rise ahead of family income, fueling student debt, a record 43% of freshmen nationwide surveyed by the University of California, Los Angeles in fall 2012 said cost had been a major factor in their college choices, up from 31% a decade ago.”
That could be particularly bad news for New England higher education, home to so many private higher-cost institutions. The Wall Street Journal recently reported that as of May 1, early reports suggest some non-top-tier schools fell 10% to 20% short of enrollment targets. Meanwhile, in Massachusetts alone, 25 colleges and universities still had space available in the current class for freshmen or transfer students at the close of the most recent admissions season.
So how do we alter students’ feelings—and the public’s—about their debt?
Acknowledge it. Face it. We can’t erase the debt. Without a major shift in public policy or a dramatic decrease in college costs, debt is how we finance higher education. But we can change the way our students approach it and deal with it. We can teach them to borrow less, borrow smarter, and repay well. We can give them the information and tools they need, when they need it.
Most importantly, student loans provide a way to engage and work with students and alumni over time, to empower them to not only take control of their student loans but all of their finances—a positive learning experience for them that brings beneficial results to the institution as well. We’ll need to change our teaching methods, though, if we want our financial lessons about loans to stick. After all, higher education has long had at its disposal entrance/exit counseling that outlines the student’s basic borrowing rights and responsibilities, as well as numerous financial education curricula, yet the student debt crisis continues to escalate. We must look to new educational models that immerse students with the cutting-edge tools and techniques they’re already accustomed to using socially, such as fun game-based activities, highly interactive online environments and peer communities and competition. Deep engagement, not traditional one-way instruction, will be more effective in changing students’ financial behaviors.
We shouldn’t tell students to fear the debt, but it’s imperative we teach them to face it.
Paul Combe is president and CEO of American Student Assistance, a Boston-based nonprofit that works with more than 150 higher education institutions nationwide, including 57 in New England, to help students “Face the Red” with the SALT financial education program.