University Business January 2018 - 31

ENROLLMENT MATTERS

When any debt is too much
Lower-income students are amassing ever greater financial burden
By Bill Berg

T

here's no question that recent
graduates are leaving college
with more student loan debt.
More students are taking out loans
and they're borrowing larger amounts.
But apocryphal stories about students
owing $100,000 or more coming out
of college don't represent the reality for
most borrowers. In 2015, roughly twothirds of student loan balances were
$25,000 or less. Fewer than 5 percent
owed more than $100,000. However,
this 5 percent of borrowers accounted
for 30 percent of total debt.
Compared to other debt-mortgage, credit card, auto-student loan
debt has increased at a higher rate in
the last several years. More significant
is the fact that, during this time, student loan debt has increased at a far
faster rate for lower-income borrowers.
Borrowers from areas with average incomes of less than $40,000 had
five-year default rates of 35 percent,
compared to 13 percent for those with
incomes of more than $80,000.
In addition, repayment and default
rates differ significantly by loan balance amount. The Federal Reserve
Bank of New York (NY Fed) reports
that 5-year default rates on balances
of up to $5,000 were just over 31 percent. This compares to 17 percent for
balances of over $100,000.
Student borrowing also varies significantly by institution type. According
to Fortune, students at for-profit colleges accounted for 35 percent of defaults.
This is despite the fact that students at

UBmag.me/debt
www.universitybusiness.com

for-profit colleges account for just 26
percent of all borrowers. These students
are the most susceptible to unemployment and underemployment, raising
their risk of default.

Student loan debt has
increased at a far faster
rate for lower-income
borrowers.
Education more important than debt
The steep growth in college costs,
driven largely by reduced state spending, has contributed significantly
to increased student loan debt. But,
notes the NY Fed, "reductions in state
spending on higher education have resulted not in a decline in schooling but
instead on increased student loan debt.
As college costs increase, American
students do not forego education, but
instead amass more debt."
As noted, the burden of increased
debt falls disproportionately on lowerincome students. Many colleges and
universities are seeing increases in the
number of new students with high levels of demonstrated financial need.
Easing the burden
There are a few hopeful signs on the
horizon, however. Recent programs
designed to ease the student debt burden for new graduates include:
* Loan repayment assistance as
an employee benefit. Some employers
are beginning to offer repayment assistance for student loans as a part of
their benefits packages. Forbes, Time
and other media outlets have recently
reported that companies like Fidelity,

Penguin Random House and Staples
are now offering to pay $2,000 or
more per year to help employees pay
down their student loan debt.
* State assistance for mortgage/
student loan payment. Last year,
Maryland created a program that
helps pay down student debt for some
first-time home buyers. Rhode Island's
Grad Grant Program provides down
payment assistance for first-time home
buyers who completed a degree within
the last three years. And a similar program has been proposed in the Ohio
legislature.
* Income-based repayment.
Student loans with repayment terms
that are contingent on income have
been around for several years. The
Income-Based Repayment (IBR) plan
currently available from the federal
government requires borrowers to
pay 10 percent of their discretionary
income each month, with remaining
debt forgiven after 20 years.
* College and university efforts
to improve affordability. Ohio State
recently announced an initiative to
cover the full cost of tuition and fees
for Ohio residents who qualify for a
Pell Grant by filling whatever gap remains after federal, state and other aid
is awarded to the student.
While it's encouraging that institutions, employers and government
agencies are beginning to take action
to address increased debt loads, greater
attention should be paid to the disproportionate impact the trend has had
on low-income borrowers and students
who attended for-profit colleges.
Bill Berg is an enrollment management
consultant at Ruffalo Noel Levitz.
January 2018 | 31


http://www.UBmag.me/debt http://www.universitybusiness.com

Table of Contents for the Digital Edition of University Business January 2018

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