Students learning to be smart with financial aid, but debt still climbing

As an education financial aid adviser, Kevin Fudge hears a lot of interesting and sometimes very sad stories: Families struggling to help put their kids through college and weighing myriad financial aid options; new students trying to make sense of financial aid documentation that can get so confusing it blurs the definitions of grants and loans are just two examples.

Then there are the ego-driven stories of parents pinched by the recession with job losses but who insist their children go to the same prestigious East Coast school they attended. So driven are some of these parents, they are willing to take out huge loans that will choke off their own ability to retire. And lest we forget, the sad story more commonly found these days is about unemployed graduates wondering how in the world they will pay back a mountain of debt incurred in receiving an education.

“We look at our center as a sort of ER (emergency room) for treating education-related challenges,” Fudge said.

Fudge works for American Student Assistance, a Boston-based nonprofit focused on helping higher education students and their families manage debt successfully. Fudge’s college planning center, housed inside the Boston Public Library, employs about 400 people and provides nationwide advisement.

On the East Coast, Fudge says there is definitely now more awareness of college costs than in the past. And he also describes a greater openness to community colleges too.

“If you’re going to a community college and transferring to a four-year school, costs are going to be significantly lower,” Fudge said.

Nationwide, community college enrollment topped 7 million in 2009, according to The College Board, a nonprofit created to expand access to higher education. In 2000, there were about 5.5 million students enrolled in community colleges.

While community college is a better financial answer for some, knowing the financial aid game, regardless of the type of institution, is important for anyone minding their financial P’s and Q’s. Weighing the return on investment for a degree is healthy before taking on too much debt for an education, Fudge said.

“We’re not questioning the investment (in education),” he said. “But what is the investment to get that degree? And what is the best return on investment and do you want to be $80,000 in the hole when you finish?”

Although he lives in an region with a highly educated population, Fudge looks to the West Coast for a better example of balancing education and debt.

The Institute for College Access & Success published a study late last year looking at state-by-state debt averages for graduates. The figures were pulled from 2011 surveys. The five states with the lowest averages were Nevada ($19,954), Arizona ($19,950), California ($18,879) and Hawaii ($17,447). The highest was New Hampshire, with a $32,440 average debt load.

Fudge, who has researched college costs and debt for years, points to the California Master Plan for Higher Education, adopted in 1960 as an example leaders today are looking to follow for moving students through the higher education system at a cost that works for both students and the system.

The California plan set in place a ranking of sorts where the top one-eighth of graduating high school seniors would be guaranteed a spot in the University of California schools such as Berkeley or UCLA and others. The top one-third of students gain access to California State University schools while community colleges would accept all students.

While the plan is constantly reviewed during legislative sessions and tweaked — and ran into its own financial struggles — as a whole it has helped to keep costs down by eliminating redundancies when clearly defining the mission of each higher education segment. Fudge said it also made community college look like less of a “demotion,” as it does to many people on the East Coast.

“California did the right thing,” added Fudge. “A lot of national reform that is happening today, California is kind of an incubator for those ideas.”

DEBT REALITIES

With a troubled economy, there are plenty of stories of workers going back to school to complete once unfinished degrees or retool skill sets. Student loan volume is increasing — to the tune of 275 percent in the past decade, the U.S. Department of Education reports; total loans outstanding topped $1 trillion in 2011.

Norm Bedford, financial aid director at the University of Nevada, Las Vegas, has seen a different borrower profile since the recession began in 2007. Bedford said the application levels skyrocketed because of what he said was a nationwide trend not unique to Nevada.

“What we really started to see was a proportional increase from all income levels,” he said. “You had poverty to middle to upper class — a lot of people laid off that went from one socioeconomic status to another.”

Today, UNLV distributes about $240 million annually in financial aid in the form of loans, grants, scholarships and other sources. That figure is up from $140 million in 2007. UNLV’s financial aid team distributes 45 percent of the state’s financial aid disbursement. The school also reports an average graduate debt burden of $18,000, below the Institute for College Access & Success report average for the state and well below the U.S. average of about $25,000.

Unfortunately, arm-in-arm with increasing lending rates is a default rate inching up to 9.1 percent as of 2010, up from 8.8 percent a year before, the Department of Education reports. When narrowing more specifically on public school borrowers, the default rate is at 8.3 percent, up from 5.9 percent four years earlier. The Department of Education also noted private-school borrower defaults were at 12.9 percent in 2010, down, however, from 15 percent the prior year.

New federal programs now offer income-based repayment, income-contingent repayment and pay-as-you-earn options for those leaving school with debt and entering an uncertain job market. But Fudge also said the programs are tied to loans made during a specific window of time, and people needing help are often surprised at their ineligibility.

Lauren Asher, president of the Institute for College Access & Success, also helps oversee The Project on Student Debt, a program launched in 2005 with the goal of calling attention to rising student debt levels and changing borrower patterns and also to start developing practical policy solutions to limit the burden of debt.

Asher and Fudge have seen a trend when comparing for-profit and public schools. In a 2008 Institute for College Access & Success study, Asher said the average borrowing rate for for-profit schools exceeded $30,000.

“I don’t suspect that number has gone down since then,” she said.

In discussing the low student debt rates in the Southwest, Asher also said the figures can be attributed to a large portion of students attending public schools. About 92 percent of recipient respondents did, per the recent survey.

Asher points out other important reasons for increasing student debt. There has been a growing reliance on borrowing for school for the past 20 years that has been the result of steadily climbing costs — a result of lower state reimbursements to schools coupled with a shrinking pool of grants and other education gap-filling options.

Federal Pell Grants, for example, covered more than 70 percent of tuition costs in the 1970s; now they cover less than a third, she said. Couple this with shrinking state budgets that are forcing tuition rates to inch up shows how the gap to cover college costs is falling more and more on students and families

The Delta Cost Project by the American Institutes for Research has chronicled the slow shift for more than 20 years. In 1993, she said, half of graduates had no debt; now two-thirds leave school with debt.

“People don’t think of this when looking at why they see so much growth in student debt,” Asher added. “It used to be that a working-class kid that’s Pell (Grant)-eligible a generation ago could work part time during school and full time in the summers could still come out without debt. Now they would most certainly have to borrow.”

TIPS

Most experts will tell you that understanding financial aid packages is confusing for even the most financially literate. But there are plenty of resources to help make the best decision.

Fudge says looking at repayment calculators and net-price calculators is a must. Also, if returning students with existing debt from a past educational experience must assess how much is still owed before taking on new debt. ASA.org offers calculators and plenty of general information and neutral advice about financial aid.

Fudge also speaks to the idea of people attending their “dream school.” On one hand it can be good to take on more debt for a higher-priced school if it helps to motivate the student to finish. One of the biggest problem groups of debt defaulters are those who take out loans but never finish degrees. Asking yourself how badly you really want the degree up front could save a lot of time, money and headache.

“We’re sometimes trying to bring rational thinking to an irrational process,” he said. “I’m not trying to discourage anyone from attending their dream school. I’m all on board with that. It’s just do you really understand what the implications are and what your responsibility is when you borrow?”

Fudge and Asher insist on reading, rereading and asking for help reading financial aid letters. Many schools have subscribed to a Department of Education standard called a “shopping sheet” that helps students figure out what Asher refers to as “the full cost of attendance,” not just tuition, but housing, living and other expenses.

Understanding the gap between assumed costs and the real costs brings an important reality check up front. Visit the Consumer Financial Protection Bureau’s “Know Before Your Owe” page for more information on shopping sheets and true costs of college attendance.

“It (a financial aid letter) might show $10,000 and look great, but the full cost of attendance could be $20,000 or higher,” Asher added.

Completing financial aid paperwork early is key. The Federal Student Aid office of the Department of Education offers the free application for federal student aid form (www.fafsa.gov). It is the first step to learning about one’s financial aid options.

Asher said it’s important to fill out the form even though it can be cumbersome, as it asks for tax return and other information. Even if students aren’t sure if they need financial aid, completing a FAFSA will at least give a snapshot of options.

Especially when it comes to grants, the early bird gets the financial aid worm, Bedford added. He has plenty of stories of recipients who saw grant funding one year but missed out the following year because of late applications.

“When we’re ready to hit the gas and go on (a certain date), the first ones in get the grant,” he added.