Student debt

The Hutchins Center on Fiscal & Monetary Policy at Brookings reported that 6% of borrowers for college education owe more than $100,000 in student debt.

Northeast Indiana colleges and universities say higher education remains a great investment despite what everyone is going to hear this year about the financial burden that student loan debt can present.

About 42 million Americans owe $1.5 trillion in student loans, which have become the second largest category of household debt behind mortgages. Indiana students leave campus with an average debt load of $29,189, according to data released last month by LendEDU.

The online personal finance company ranked colleges and universities in each state by the average student loan debt per borrower, and Indiana’s three highest profile institutions of higher learning placed 11th, 13th and 14th.

The average student loan debt per borrower came to $27,686 for the University of Notre Dame, where 42% of the graduating Class of 2018 left with debt; $28,352 for Indiana University Bloomington, where 44% had debt, and $28,440 for Purdue University, where 40% had debt.

The heaviest student loan debt per borrower was $45,345 at Rose-Hulman Institute of Technology, where 60% of the graduates had debt. Student debt data for more universities in the state, including some in northeast Indiana, is available at https://lendedu.com/student-loan-debt-by-school-by-state-2019/#IN.

The Hutchins Center on Fiscal & Monetary Policy at Brookings invited economists to help clear up common misconceptions on the subject during an event last October where they examined ramifications of student debt as a macro-economic problem.

Five key points distilled from the conference were summarized the following month, and much of that information was shared in the center’s January report: “Who owes all that student debt? And who’d benefit if it were forgiven?”

To the extent that Indiana student borrowing would be in line with national patterns, the information could add important context to the state’s $29,189 debt load figure.

For example, the Hutchins Center reported about a quarter of the nation’s student loan borrowers, who have close to half of the country’s student loan debt, borrowed for graduate school.

“Thirty percent of all bachelor’s degree recipients graduate with no debt, and another 23% graduate with less than $20,000 in loans. Fewer than 20% of all borrowers owed more than $40,000,” the center said in its “Five facts about student loans” report.

“Among for-profit schools, nearly half of all borrowers owed more than $40,000, but only 12% of those who attended four-year public colleges owed the same amount,” it said.

Only 6% of borrowers owed more than $100,000, and together their debt amounted to about one third of that $1.5 trillion owed nationwide, it said.

Northeast Indiana colleges and universities encourage caution and restraint for students who borrow to fund their education.

“Currently, our students have a 7.5% default rate and the national rate is 10.1%,” Douglas Hess, financial aid director for Purdue University Fort Wayne, said in an email.

“While we are below the national average, Purdue Fort Wayne is always looking at ways to discuss with students and their families why it is almost always in their best interest to borrow conservatively,” he said.

“Financial aid is individualized and we are very sensitive to each student’s unique situation,” Hess said. “This type of guidance enables them to understand from the onset how their financial responsibilities will evolve over time so they are better prepared to manage their monthly payments after graduation.”

Currently, 74% of Purdue Fort Wayne students receive financial aid, he said.

At the Fort Wayne campus of Ivy Tech Community College, Teresa Vasquez, financial aid director, said in an email it is participating in an experimental U.S. Department of Education program that reduces the student loan annual limits by $2,000 below established federal limits.

“This borrowing limit is based on Ivy Tech’s state tuition rate and estimated cost of attendance. This effort helps reduce debt for students obtaining a certificate, technical certificate, or their associate’s degree,” she said.

At Trine University, Scott Goplin, vice president for enrollment management, said in an email its average student from the Class of 2019 owed $25,663 in federal loans upon graduation.

“With salaries of this last class averaging $59,691, overall our students have a solid history of repaying their educational loans,” he said.

“Admittedly, there are rare cases that struggle, and even rarer that default on their loans. This same class represented a 99.4% rate in job and graduate school placement. Return on investment is a Trine thing!”

Colleges and universities in the region welcome efforts to clear up misconceptions about student debt.

“I believe there are various misconceptions about student debt. A common suggestion is that students have been preyed upon in some form or fashion, and as a result, they did not understand they were getting into debt,” Hess said.

“Our students must complete loan counseling prior to taking out their first loan. This is required before we can disburse a loan to them. Through this step, our students build a strong understanding of what is taking place,” he said.

Financial aid officials at Purdue Fort Wayne are familiar with the misconception that many undergraduates are leaving college more than $100,000 in debt and Hess said there are multiple variables that factor into what students may owe when they graduate.

It is worth considering whether debt was taken on while a student attended a public or private institution and whether the debt includes loans accepted while seeking a graduate degree, he said.

It also is worth asking whether borrowers received a federal loan, which includes a maximum amount of $57,500 in student debt, or if they have a combination of federal and private, sometimes called alternative, loans, he said.

“All schools are in the federal direct loan program, where government-funded student loans help students cover costs while they are enrolled in college,” Hess said.

“By participating in the federal direct loan program, we are also able to counter an inaccurate view that all lenders are pressuring students to borrow more than they need. That is not the case,” he said.

For context, debt.org reported the average family with student debt owed $34,200 in 2016, and in November 2018, only 6% of students with federal student loans owed $100,000 or more, Hess said.

“Another common misconception is that these loans can be easily forgiven. This is not 100% correct. Students cannot file bankruptcy for a student loan, but some loan forgiveness is possible through certain federal programs,” he said.

Students should create a budget projecting annual expenses and the amount of financial aid that will be available to them in the form of grants and scholarships to help cover costs, then limit borrowing to the amount needed to cover any gap as a last resort, Vasques said.

They also should budget future repayments based on projected earnings associated with their degree choice. However, many of them take out as much as they can in student loans each year instead of budgeting, she said.

Among the biggest misconceptions they have about their borrowing is their loans do not accrue interest while they are enrolled, Vasques said.

“It depends on the type of loans a student borrows,” she said. “Federal direct subsidized loans require that students maintain half-time enrollment. If students fall below half-time enrollment, their six-month grace period starts and could cause the student to go into repayment.”

Among the biggest misconceptions that have been spreading about student debt is the notion that attaining a college education does not justify going into debt, Vasques said.

“Statistics show that students who attend and complete college have higher earning potential than someone with just a high school diploma,” she said.

The Hutchins Center’s January report said individuals with college degrees experience lower unemployment rates and increased odds of upward economic mobility.

Individuals working full time, year-round from age 25 typically earn $1 million more over the course of a career with a bachelor’s degree and $360,000 more with an associate degree, it said, than a degreeless high school graduate earns.

In Goplin’s opinion, the greatest misconception requiring correction is the notion that a typical college student will assume a burdensome amount of debt by graduation, often perceived to be greater than $100,000.

LendEDU had the national average student debt burden at $28,565.

“The majority of students and families borrow responsibly and repay their loans. Further, educational loans are often subsidized and at interest rates appreciably lower than the rates on credit cards, car and home loans,” Goplin said.

Most private, non-profit colleges and universities take their responsibilities seriously when it comes to helping students and families minimize debt and counseling them on requirements for financial assistance and what is available in the way of institutional need and merit aid, grants, loans and student employment, he said.

“The goal is to always counsel families on only assuming the level of funding necessary to meet costs,” Goplin said.

Between 2008 and 2019, institutional grant aid increased by 60% and total loan volume fell by 15%, showing higher education institutions have been assuming more and more responsibility for the student’s education cost, he said.

A segment of the Hutchins Center’s January report looking at who would benefit from various student debt forgiveness plans proposed by presidential candidates reflects many viewpoints, Vasquez said.

Taking on debt “is an individual choice made by students based on the type of university they plan to attend. The educational market offers many opportunities for students based on cost,” she said.

“However, the decision on which college to attend is not always selected on what a family can afford. This is when students may experience large student debt as they borrow annually to obtain their degree.”

Hess does not believe borrowers who can’t afford to pay off student loans would benefit the most from a hypothetical plan that involves total student debt forgiveness, he said.

“Those who have obtained expensive degrees, specifically something beyond a bachelor’s degree, in fields with higher salaries would benefit early on before they reach their highest earning potential,” Hess said. “Unfortunately, the biggest loser if this scenario was to play out might ultimately be the American taxpayer.

“This could be particularly true for the individuals and communities who don’t stand to benefit directly from the skill, training and enhanced financial position of those whose student debts have just been eliminated.”

Goplin believes information in the report made it “clear that much of today’s debt burden conversation has been driven by the irresponsibility of the for-profit technical, proprietary, community college and two year schools with graduation/persistence rates of less than 17%,” he said.

Public and private universities need to continue finding ways to reduce tuition costs, control spending, ensure their students earn degrees, and have jobs upon completion, he said.

Indiana is among the best states for supporting college student costs. However, there is a broad, nationwide need for federal and state college funding sources to redouble their efforts to support their schools and students, and find additional ways to relieve student debt, Goplin said.

“On the other hand, the (Hutchins Center) article does a great job in pointing out the value of an education over a life time as compared to a high school diploma and how loan debt is minimal as compared to net income value,” he said.

“Loan forgiveness proposals are short sighted, simply not fair to the taxpayer nor to the greater number of college graduates who understood the value of a college education and are willing to assume one of the few financial commitments/decisions that appreciate in value over a lifetime, and pale in comparison to the short-term burden.”

Financial aid officials at Purdue Fort Wayne strongly encourage students to borrow conservatively while in school, Hess said, because they have seen many instances when scholarships, student loans and other assistance only get students through a couple of years before resource depletion confronts them with a difficult decision to leave school for full-time employment before they have earned a degree.

“We have an obligation to these students to do everything in our power to get them to the finish line so full application of the valuable education they’ve already received isn’t lost, or at the very least stalled indefinitely,” he said.

“We are also working on adding financial literacy to strengthen our message to our students when it has the greatest positive impact. A good place to start for valuable information about financial aid at Purdue Fort Wayne is PFW.edu/Financial-Aid/.”

Families with kids need to start saving for college when they are at a very early age instead of relying too heavily on financial aid when planning for the future, Vasquez said.

Many times families will wait until they have a high school senior to consider the next step in their education with “an expectation that financial aid will cover all costs and that is not always a true statement, based on the college choice and cost of attendance,” she said.

“Best advice, be a smart shopper!”

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