Subprime opportunity: The unfulfilled promise of for-profit colleges and universities

(iStock)

From 1998 to 2008, while enrollment at traditional colleges and universities increased just 20%, the for-profit sector grew dramatically, rising more than 230%. Much of the new institutions’ growth came through minority and low-income students, which make up 37% and 50% of the schools’ enrollments, including many veterans.

While for-profit colleges do succeed in giving underserved communities access to higher education, that access comes at a cost. A 2010 report by the Education Trust, “Subprime Opportunity: The Unfulfilled Promise of For-Profit Colleges and Universities,” finds that, for many students, the costs of attending a for-profit institution can outweigh the promised benefits.

The report’s key findings include:

• Because of their higher tuition and lower aid, for-profit schools require students on average to finance nearly $25,000 in tuition every year. Private nonprofit schools require less than $17,000 and public schools approximately $8,600.
• To cover the cost of their education, 94% of students at for-profit colleges take out federal Stafford loans compared to 54% of students at private nonprofit institutions. In addition, about 46% of students at for-profit institutions take out private loans as well to cover the high cost of attendance.
• While for-profit institutions cost significantly more, they dedicate less than 25% of the amount that public and private nonprofit schools do per student.
• The median debt level of students at graduation from a bachelor’s degree in a for-profit institution is $31,190, nearly double that of a student at private nonprofit institutions and about four times the amount of students at public institutions.
• Despite the for-profits’ higher costs, their graduation rates are often low. Of first-time, full-time students seeking a bachelor’s degree at for-profit schools, just 22% earn degrees from those institutions within six years. In comparison, 55% to 65% of students at nonprofit schools graduate within six years.
• Within two years of beginning repayment, approximately 10% of students at for-profits default on their federal loans. The three-year default rate is 19%, twice that of students at public and private nonprofits, and represents 43% of all federal student loan defaults.

The problems of the for-profit higher education sector can in part be traced to lax regulation, the authors state.

source; journalistsresource.org

Federal student loans: patterns in tuition, enrollment and federal Stafford loan borrowing up to the 2007-08 loan limit increase

(iStock)

College tuition costs, which have been steadily rising over the past few decades, may put higher education out of reach for many aspiring students. To provide more financial resources for these students, Congress has raised the ceiling on the amount qualified undergraduates could borrow from the federal Stafford Loan program.

A 2011 report from the U.S. Government Accountability Office, “Federal Student Loans: Patterns in Tuition, Enrollment and Federal Stafford Loan Borrowing Up to the 2007-08 Loan Limit Increase,” investigated how changes to the federal Stafford Loan program affected college enrollment. Researchers used U.S. Department of Education data, augmented by interviews with administrators from seven representative schools, to track variables relating to college enrollment and financing from academic year (AY) 1999-2000 to AY 2009-2010.

Key study findings include:

• “After the change to the Stafford loan limits beginning in AY 2007-08, the price and the numbers of undergraduate students enrolling in the nation’s institutions of higher education increased at a rate generally consistent with prior years. This pattern was consistent across most institutional sectors.”
• The Stafford Loan program disbursed approximately $24 billion in AY 1999-2000, $31 billion in AY 2003-2004, $36 billion in AY 2007-2008 and $56 billion in AY 2009-2010. Researchers suggested that these recent increases were driven by more student demand and less state support, private loan and grant opportunities.
• The number of students borrowing the maximum Stafford loan amount they qualified for declined between AY 2003-2004 and AY 2007-2008. “Borrowing by second-year students declined … sharply, ranging from a 12-point percentage drop for unsubsidized loans to a 21-point percentage drop for subsidized loans. In contrast, the proportions of third, fourth, and fifth-year borrowers who took out the maximum amounts generally showed little or no change.”
• First- and second-year students comprise about 60% of all Stafford Loan borrowers. The typical maximum borrower in AY 2007-2008 was white, attended a public four-year school full-time and still dependent financially on his parents or guardians.
• As of AY 2009-2010, 40% attended public two-year institutions at an average annual cost of $2,762, 36% attended public four-year institutions ($6,459/year), 15% attended non-profit four-year institutions ($24,746/year) and 9% attended for-profit two- and four-year institutions ($14,130/year).
• Total college enrollment has increased approximately 30% since AY 1999-2000, from 12.5 million students to 17.5 million students. “In the 3 academic years after the increase to the loan limit that took effect beginning in AY 2007-08, enrollment rose by about 2 million students (a 12 percent increase).”
• The report also contains data on private loans taken by students. The total amount borrowed from private financial institutions rose from roughly $3 billion in 1999-2000 to $18 billion in 2007-2000, according to College Board data cited. However, because of the subsequent Great Recession, the tightening of credit, and more stringent lending practices, these sources became more difficult to access. “As these private loans declined, there was a significant increase in the total dollar amount of unsubsidized loans issued to students between AY 2007-08 and AY 2009-10.”

source: journalistsresource.org

Effects of college educational debt on graduate school attendance and early career and lifestyle choices

The student loan burden across the U.S. population stands at $870 billion as of late 2011, exceeding Americans’ aggregate credit card balance ($693 billion) and total outstanding auto loans ($730 billion), according to an analysis by the Federal Reserve Bank of New York. The average borrower now carries $23,300 in debt, and a snapshot of 2011 loan data suggests that some 27% of borrowers have past due balances. As the amount of student debt continues to increase, past research suggests that this issue could have significant individual and societal consequences.

A 2010 study from Clemson University published in Education Economics, “Effects of College Educational Debt on Graduate School Attendance and Early Career and Lifestyle Choices,” examines the impact that college debt has on subsequent life choices. The researcher analyzed college financial aid data from more than 7,000 subjects who graduated in 1992 and 1993; follow-up surveys in 1994 and 1997 captured self-reported data on post-college activities such as graduate school, home ownership and family formation.

Key study findings include:

• A $1,000 increase in debt for public college graduates reduced the likelihood of their attending graduate school within four or five years after earning their degree by 2.7 percentage points. For graduates of private colleges, however, there was no effect.
• The number of public college students enrolled in doctoral and professional post-graduate enrollment is strongly tied to debt levels. “A $1,000 increase in college debt reduces the probability of attending a doctoral program by 0.9 percentage points and the probability of attending an MBA or FP [first professional] program by 2.1 percentage points.”
• “Higher outstanding debt may induce students to choose more lucrative occupations in the short-term. This may lead to slower growth of earnings in the long term, or, more to the interest of the society, to an inefficient allocation of college graduates to private for-profit jobs at the expense of public-interest jobs such as teaching because of their lower payment.”
• “Of all the public college students, 68% have not attended any graduate program; 21%, 3.5% and 7.4% have attended a master’s, a doctoral, and an MBA or FP program, respectively. The percentages for private college students are 60%, 24%, 4.9% and 10.8%.”

The study concludes that “recent years have seen much higher levels of indebtedness of college graduates than in the early 1990s…. We might expect a larger effect of debt on post-baccalaureate decisions now than in the past.”

source: journalistsresource.org

Women see value and benefits of college, while men lag on both fronts

Higher education in the United States was once an essentially male domain, but by the 1970s the vast majority of colleges and universities were co-educational. Women’s educational levels lagged behind men’s for some time, but according to a 2011 report by the Pew Research Center, that changed around 1990: That year, women surpassed men’s attainment levels, and since then the gender gap has continued to grow.

The report, “Women See Value and Benefits of College; Men Lag on Both Fronts,” was based on a survey of 2,142 adults 18 and older living in the continental United States. The questions focused on the perceived affordability and value of college as well as the importance of degree attainment. A survey for an earlier Pew report, “Is College Worth It?” provided additional data.

The survey’s findings include:

• In 2010, 36% of women ages 25 to 29 had attained at least a bachelor’s degree compared to just 28% of their male peers.
• For young adults age 25 to 29, Asian-Americans have the highest rate of advanced education: 53% had at least a bachelor’s degree in 2010. This compares to 39% of whites, 19% of blacks and 13% of Hispanics.
• For all racial and ethnic groups, women are more likely than men to graduate from college. “Among all college graduates ages 25 to 29 in 2010, 55% were women and 45% were men. The gap was largest within the black community, where 63% of college-educated young adults were women and only 37% were men.”
• More women see college as being advantageous than men. “College-educated women are more likely than their male counterparts to say college was ‘very useful’ in increasing their knowledge and helping them grow intellectually (81% vs. 67%), as well as helping them grow and mature as a person (73% vs. 64%).” However, only 58% of women and 52% of men said that college was “very useful” in preparing them for a job or career.
• A slim majority of college-educated women (50% to 47%) believe that college provides good to excellent value, while a wide majority of male graduates (37% to 59%) believe that it provides only a fair or poor value.
• Women are more likely to have their degree paid for by their parents. For women, 40% said that most of their education was paid by parents, while only 19% said they paid for most themselves. Among men, 29% said most of their education was paid by parents and the same percentage said they paid the majority themselves. For both genders, 36% said that it was mostly paid by student loans, scholarships or financial aid.
• More women than men believe that college is unaffordable. “Among college graduates, women are less likely than men to agree that most people can afford to pay for college (14% vs. 26%).”
• Most Americans (57%) feel that the U.S. higher-education system is not providing sufficient value for the money spent by students and their families. Just 40% of all adults say schools are doing an excellent or good job in this regard. The majority of men (59%) feel the system is doing a fair or poor job, as do 47% of the women.

The related Pew study, “Is College Worth It?” looks at public attitudes toward university education, including cost and value. The report also includes data from a survey of the presidents of more than a thousand two- and four-year institutions.

source; journalistsresource.org

Student loans: Do college students borrow too much — or not enough?

(iStock)

As the United States struggles to recover from the Great Recession of 2007-09, many would-be students remain optimistic about their professional futures. Some question the wisdom of assuming substantial debt to earn a college degree, however, especially when jobs for young people remain relatively scarce. As of 2012, the average debt load was $25,000 for a graduating senior, with a median figure of about $13,000. But high school graduates earn about $20,000 less than college graduates in terms of median annual income, according to Census figures.

A 2012 study from Harvard University and the University of Virginia published in the Journal of Economic Perspectives, “Student Loans: Do College Students Borrow Too Much — or Not Enough?” examined data on student loans in the United States, including broad trends in borrowing over time and optimal loan amounts based on course of study and institution.

Key study findings include:

• On average, college education increases total life earnings: In 2012 figures, “the college graduate would have compiled a total of approximately $1.2 million in earnings net of tuition at age 64 as opposed to approximately $780,000 in total earnings for the high school graduate.” This gap was approximately $200,000 from 1965-85 but steadily increased by 1985 to the current gap of more than $400,000.
• For the average student, a standard ratio of 8-10% loan burden to average post-graduation income has remained relatively stable: “To put this in perspective, an individual with $20,000 in student loans could expect a monthly payment of about $212, assuming a ten-year repayment period. In order for this payment to accrue to 10 percent of income, the student would need an annual income of about $25,456, which is certainly within the range of expected early-career wages for college graduates.”
• “Students who have chosen a technical field — in the broad categories of computer science, engineering, and math — tend to earn more than the average and more than those with education or humanities undergraduate concentrations.” A 2008 graduate with a concentration in computer science or engineering can expect total earnings of more than $1,800,000; his or her classmate who majored in education can expect to earn or 61% less, or approximately $1,100,000.
• As of November 2011, the “unemployment rate for college graduates (including those with advanced degrees) was 4.4%, while high school graduates faced an unemployment rate of 8.5% and those with collegiate attainment less than a B.A. faced an unemployment rate of 7.6%.”
• The percentage of undergraduates taking out any type of debt for school has grown in the last 20 years, from 19% in 1989-90 to 35% in 2007-08. Over the period 1960-80, the U.S. government distributed more grant monies than loans; after 1980, loans steadily increased while grants stagnated until a recent — and significant — increase in 2009.
• Private-sector borrowing to finance higher education has increased significantly in recent years: “Private sector loans were about $1.5 billion (constant 2009 dollars) in 1995-96 [and] grew to $21.8 billion by 2007-08, representing about 20% of all loan funds.”

The researchers note that while most students will see a high return on their investment in college, incurring debt “is also a lottery with significant probabilities of both larger positive, and smaller or even negative, returns.” They advise students to carefully consider borrowing limits by evaluating how previous students on a similar path have fared economically and professionally.

In related research, a 2012 Federal Reserve Bank of New York study notes that “about one-quarter of borrowers owe more than $28,000; about 10 percent of borrowers owe more than $54,000. The proportion of borrowers who owe more than $100,000 is 3.1 percent, and 0.45 percent of borrowers, or 167,000 people, owe more than $200,000.”

source: journalistsresource.org

Chasing the American dream: Recent college graduates and the Great Recession

(iStock)

As hundreds of thousands of newly minted college graduates pack away their cap and gowns each year, many have one common worry: “Will I be able to find a job?” Rising student loan debt has been the focus of public debate, but the Great Recession has made the overall situation for new graduates that much more difficult.

The John J. Heldrich Center for Workforce Development at Rutgers University investigated how the recession is affecting college graduates. Published in 2012, the report, “Chasing the American Dream: Recent College Graduates and the Great Recession,” is based on a nationally representative sample of nearly 450 college graduates who completed their degrees between 2006 and 2011. The sampling error is plus or minus 5 percentage points.

The report’s findings include:

• Only “one in two college graduates were employed full time at the time of the survey and another 26% were working part time”; in addition, “12% were either unemployed (6%) or underemployed (6%).”
• These overall patterns of work seemed to dampen expectations for this generation of graduates: “Only about half (48%) thought they will have more financial success than their parents.”
• Of all those with full-time employment, the median salary was $28,000; for men the figure was slightly higher, $30,000. However, 60% of graduates took a job paid by the hour. The median hourly wage was $10.23; it was $12 for women and $9 for men.
• The recession is affecting starting salaries: “Those who graduated during the recession-era labor market (2009 to 2011) earned $3,000 less on average in their first job than those who graduated before the recession began.”
• “Many graduates were disappointed with their starting salary; over half reported that it was less than they had expected it to be. About 40% said they expected to earn the starting salary they were offered and nearly 1 in 10 reported their salary was higher than they expected it to be.”
• Having practical experience helped graduates to have higher income; students who completed an internship while in college earned nearly 15% more on average — $30,000 versus $26,000 — than those who did not undertake an internship.”
• A combined 57% said that they wished they had been more careful about choosing a major or had taken more classes to prepare for a career. But only 3% said that, upon reflection, they would not have gone to college.
• Another key to higher salary was continuity between one’s education and line of work:  Graduates who found a job related to their field of study earned approximately 15% more on average than those who did not.
• While approximately three-fourths of those surveyed believed they were accepting permanent positions, just 2 in 10 saw their first job as being on their career path.
• One-quarter of the graduates took their job because of its salary and benefits or because it provided an opportunity for professional development; 20% did so because they had no other offer or alternative.

“Although college graduates are fairly optimistic about their future,” the researchers conclude, “about 4 in 10 still believed that having a job where they earn enough to have a comfortable life is quite a ways off.”

source; journalistsresource.org

Constrained after college: Student loans and early-career occupational choices

As of 2011, the average loan debt among all U.S. college graduates was $23,300; the median was $12,800.  The overall student loan burden stood at $870 billion, exceeding Americans’ aggregate credit card balance ($693 billion) and total outstanding auto loans ($730 billion). Do financial obligations significantly limit a student’s life choices or, as other research suggests, are these educational expenses trivial when measured against enhanced professional earnings over time?

A 2011 study from the University of California-Berkeley and Princeton University, “Constrained After College: Student Loans and Early-Career Occupational Choices,” estimates the effect of student debt on early career choices made by recent graduates attending a highly-selective university that eliminated student loans entirely in favor of grants in the early 2000s. Published in the Journal of Public Economics, the study compared the professional choices of three groups of students: students who received both loans and grants; student who received only grants; and students who received no financial aid.

Key study findings include:

• “Debt leads graduates to choose higher-salary jobs. Much or all of this effect is across occupations, as debt appears to reduce the probability that students choose low-paid ‘public interest’ jobs. Debt effects are most notable on the propensity to work in the education industry.”
• Students who received financial aid packages free of loan obligations shifted their focus from industries with higher salaries to those that offered lower salaries. (Over the study period, “there was little change in the industry composition of jobs taken by students not on aid.”)
• Graduates with higher debt burdens chose jobs with higher salaries; for every additional $10,000 in loan obligations, a student’s post-graduation salary rose by $2,000 annually and “reduced the likelihood that an individual will take a job in nonprofits, government or education by about 5 or 6 percentage points.”
• Debt had almost no effect on a student’s academic performance or his or her ability to secure a job after graduation.

The authors note that the premise that educational debt should have at most a small effect on career choices is not borne out by their data. It is also not clear from this study if financial aid candidates might benefit more over time from attending a less elite — and more affordable — school.

A related study in Education Economics, while based on older data, also concludes that loan burdens influence subsequent life and career choices.

source: journalistsresource.org

Federal student loan debt burden of noncompleters: Statistics in brief

(iStock)

Student loan debt has become an increasing problem in recent years. As the New York Federal Reserve notes in a 2013 report, “Over the last eight years, aggregate educational debt outstanding has almost tripled, rising to nearly $1 trillion and becoming the largest consumer liability after mortgages.”

No other form of debt — auto loans, home equity, credit cards — has seen this sort of steady rise for Americans. Between 2004 and 2012, the number of borrowers and the average amount borrowed each went up by 70%. Still, the overall debt for individual students varies significantly; most students end up with a burden of less than $25,000, and nearly 40% have less than $10,000, as the New York Fed highlights:

A college degree, particularly one in a science and technology discipline, can lead to increased earnings over the course of a lifetime. While the cost of higher education has soared since 1980, aspiring students of limited means can receive financial aid — typically some combination of federal grants, low-interest loans, and institutional work-study and awards — to pay for their education. For instance, the Stafford Loan program disbursed approximately $24 billion over the 1999-2000 academic year, $31 billion in the 2003-2004 year, $36 billion in 2007-2008 and $56 billion in 2009-2010.

It is not clear to what degree these loans help students complete their education. A 2013 study from the College Board Advocacy and Policy Center found that only 25% of Pell Grant recipients 25 or younger completed their bachelor’s degrees six years later, and the rate was just 3% for older students. To what extent do finances play a role in college completion rates?

A 2013 report from MPR Associates for the National Center for Education Statistics, “Federal Student Loan Debt Burden of Noncompleters: Statistics in Brief,” examines federal student debt burden accrued by students who did not complete a postsecondary credential within six years. The researchers analayzed longitudinal National Center for Education Statistics data of postsecondary students who first enrolled in 1995-1996 (and their status as of 2001) or 2003-2004 ( and status as of 2009) to better understand completion rates, borrowing habits and debt burdens. (Note: These figures only reflect federal loans and do not reflect total debt for students, as many loans also come from private sources.)

Study highlights include:

• As of 2009, the percentage of noncompleters after six years ranged from 19% of students in private nonprofit four-year institutions to 46% in public two-year colleges or for-profit institutions. An increase in noncompletion between 2001 and 2009 was observed only for students in for-profit institutions (from 35% to 46%).
• Noncompleters’ use of federal loan programs ranged from 25% of those attending public two-year colleges to 86% for those at for-profit institutions; comparable rates for students in four-year public and private nonprofit institutions were 54% and 66%, respectively.
• For those who started at for-profit colleges, the average federal loan debt was $7500 in 2009 dollars. That figure was $9300 among students who enrolled at four-year public colleges; and $10,400 for students who began private four-year colleges.
• The cumulative amount borrowed per academic credit earned was highest for noncompleters at for-profit institutions — $350 per credit, compared with $80-$190 per credit in the other three types of institutions.
• The median cumulative federal student debt for all noncompleters was the equivalent of 35% of their annual income. The debt burden was highest for students in four-year private nonprofit institutions — 51% of borrowers’ annual income. Debt burden among noncompleters who started in for-profit institutions increased from 20% to 43% of annual income between 2001 and 2009.
• In 2009, 31% of noncompleters who started at for-profit institutions carried debt of 100% or more of their annual incomes. This far exceeds the rates of those with similar debt burdens who first started at other types of institutions, 7% to 21%.
• “Noncompleters in 2009 had lower rates of employment when they left post-secondary education than did completers at all four institution sectors analyzed in the study.” The lower rates of employment affect the ability of nocompleters to pay back loans that have grown increasingly burdensome.

“While student loans improve access to postsecondary education, repaying them has become increasingly difficult for students who are unemployed, underemployed or who earn a limited income,” the researchers write. Unfortunately, “these circumstances are more common among students who do not complete a degree than among those who do.”

source: journalistsresource.org

Graduate school loan strategy

Now that you have made your decision about where to attend graduate school, it is time to figure out how you are going to pay for it. This can be a daunting process, but with a good strategy and help from your school's financial aid office, it doesn't need to hinder your studies. It is possible to keep your expenses to a minimum during school and to repay your loans later without going broke.

Before enrollment

Once you are accepted, the university's Financial Aid office will send you a financial aid package based on your Federal Application for Federal Student Aid (FAFSA) report. The FAFSA consists of a questionnaire about your personal and family finances, your background, and your education expectations. Your "need" for student aid is then calculated, and the FAFSA report is sent to your target college(s), which offer you an aid package. You may discover that you will need more or less than what is offered. Once you get your financial aid offer, it's time to figure out how much money to borrow and to write up a budget.

More loan-related resources

In addition to the links in the text, here are a few other resources that can help you understand the world of graduate education loans.

• Read "Navigating student loan options"
• More articles on financing your education

The student life or financial aid offices at many universities publish sample budgets for their students, which can be helpful in designing your own. Here is a sample budget that can help you make your own:

• Texas A&M Student Budget

It is important to outline a personal budget for yourself for the entire time you are expected to be in school. Your budget should include all expected expenses and income, so you can estimate how much you will need to seek in loans and other aid. This sample budget can help you plan your financial outlook; your target school may offer a sample budget with program-specific costs on its website. Sample budget templates can be found online that account for various other expenses typically encountered by grad students.

A good loan strategy starts with minimizing the amount you need to borrow (the principal). Remember, the less you borrow, the less you pay back in interest. If you were a very good student as an undergraduate, planning on studying a high-need subject, or are a member of an underrepresented population, apply for all the scholarships you can that are offered by your university and by private or public organizations. Seek employment at the university as a teaching or research assistant. Many schools will remit (waive) your tuition and/or provide you a stipend that will drastically reduce the cost of your education.

If you are awarded any scholarships, grants, or assistantships, calculate the income in your budget, and borrow an equivalent amount less as a principal. Even if you can get a high loan amount, take out the bare minimum and live as frugally as possible. Your post-graduate self will thank you later.

Action steps:

• File a FAFSA report so that you can start the financial aid process.
• Develop a personal budget reflecting your income and expenses for the full anticipated length of your graduate studies.
• Use your budget to determine the minimum possible principal you should take in student loans.

While enrolled

The best way to limit your loan debt is to be an excellent student. Do what you can to get good grades, be active on campus, and create good relationships with your professors and advisors. This will go a long way toward making you more competitive for scholarships, grants, and assistantships. If you didn't get any financial aid aside from loans your first year, you can use your new, improved standing on campus as a foundation to compete for awards in the next year.

As long as it doesn't negatively affect your studies, get a part-time job to help cover your expenses. It may certainly be possible to subsist on your loans, but the income from a job will greatly reduce the financial stress of the debt after graduation. If you have many expenses, attending grad school part-time and working full- or part-time might be your best option. Paying for school up front is much cheaper in the long run than paying with loans, so be smart about how much loan debt you can really handle.

After graduation

Armed with your advanced degree, it's time to land that fulfilling job with a good salary. It's also time to pay back the thousands of dollars you owe to your lenders.

Some federal loan programs forgive (cancel) your debt if you work in a certain areas of public service (see our article on navigating student loans). Perkins loans (PDF) may be cancelled for a variety of circumstances detailed in the cancellation request. Teachers who practice in specific low-income districts or teach high-need subjects may have their federal loans forgiven. Federal loans can also be deferred while you fulfill volunteer term-of-service programs such as Peace Corps or AmeriCorps, easing your financial obligations during low-income volunteer service. Ask your financial aid advisor about these loan forgiveness or deferment options during your exit counseling upon graduation.

If it helps reduce your interest rate, consolidate your loan debt with any undergraduate debt you still have, and make one monthly payment instead of several. If you have several federal loans, you can also consolidate those into one loan, which may make repayment easier and give you a longer repayment term. Private loans can be consolidated as well, but be sure to shop around for the best rates and incentives—remember that banks will be competing for your business. Talk to your financial advisor or student aid office about loan consolidation for more in-depth advice.

Figure out how much you can realistically pay back each month based on your expected income. Try to pay back your debt as a percentage of your income. If you get a higher paying job two years out of school, adjust your repayment accordingly. This way, you will pay it back faster and pay less interest over the life of the loan.

Conclusion and further resources

Being financially savvy during grad school requires restraint and foresight. If you're invested enough in your professional future to take on the considerable expense of grad school, you should be sure to budget and limit debt as intelligently as possible. Chase scholarships, assistantships, and fellowships, while also increasing your chance of getting them by excelling in your coursework. While it's no guarantee, the best way to keep school cheap is to be a good student. After you graduate, learn more about managing your education debt.

source:www.idealist.org/

Q&A: Elizabeth Warren on Spiraling Student Debt and What Should Be Done About It

This story was co-published with Marie Claire. It is not subject to our Creative Commons license.

Elizabeth Warren knows what education can do. Her new book, A Fighting Chance, tells of what it did for her — starting at age 16, when she secretly applied to college and persuaded her parents to let her go. After earning both a bachelor's and a law degree, she immersed herself in bankruptcy law, which taught her how easily ordinary people can spiral into debt. Here, the Democratic U.S. senator from Massachusetts tells ProPublica why she's decided to tackle the problem of student-loan debt, and what the government can — and should — do to help.

Q: Why have you taken on the issue of student debt?

A: The cost of college has gone through the roof. More and more young people have to finance through bigger and bigger student loans. They leave school and they're trying to start a life, start a family, get a job — and they're drowning in debt.

I want every person to have the kinds of opportunities I had. It's personal. My parents struggled financially. My father ended up as a maintenance man, and my mother worked the phones at Sears. Education opened a thousand doors for me. I had loans, and I worked part-time, and it was enough to keep me going. But the big difference is that I went to school at a time when this country was investing in students.

Q: How big a problem are we talking about?

A: There's $1.2 trillion outstanding in student loan debt. That's more than credit card or car loans, more than any other kind of consumer debt except mortgages. It's crushing people.

Q: It also has the highest delinquency rate of all types of consumer debt.

A: That's right. Because students can't manage debt loads this size, particularly in a sluggish economy.

Q: Why should people care about this issue?

Student loan debt affects the whole economy. Instead of buying a house or a car, young people are pinching pennies to deal with crushing amounts of debt. That's not good for the economy. It's not good for businesses. We need those young people entering the workforce and able to spend.

Q: What is Congress doing to help?

A: This is the part that makes me grind my teeth. Right now, the United States government is making huge profits off the backs of our students. Our young people not only have to pay back the cost of the loans, they have to pay billions more in interest to the government — like an extra tax for trying to get an education. That's just wrong. We ought to be investing in young people who are trying to get an education — not making it harder for them.

Q: Student loans are treated differently than many other kinds of debt under bankruptcy law, so it's much harder for struggling borrowers to discharge their student loans. Do you think this should be changed?

A: Yes. I have co-sponsored a bill with Sen. Durbin, D-Ill., that called for making student loans dischargeable in bankruptcy. Keep in mind: Young people who have student loan debt — they didn't go to the mall and charge up a bunch of things they couldn't afford — but if they had gone to the mall, they could discharge those debts in bankruptcy. It's only the student loan debt they can't discharge.

Q: So whatshould the government be doing?

A: For both private loans and federal loans, the fixes are pretty similar. We need to restore bankruptcy protections, provide better oversight of the government contractors that work with borrowers and process loan payments, and ensure that struggling borrowers can get help to modify their loans.

Q: About those private contractors handling student loans, how could the Education Department be providing better oversight?

A: The first step here is transparency. There's not much information about how student loans are performing or how the loan servicers are working with borrowers to help them repay their debt. The Department of Education should collect better information and make it public.

Q: The student-loan system is complex. What advice do you have people at different parts of the process?

A: For the person who hasn't taken on any student loans yet, someone who's looking at college: First, fill out the federal financial aid form. It's online and it's free. Students who don't fill out the form miss out, not just on federal grants and loans, but also on scholarships from their colleges and from their state. Fill out the form. It's really important.

Q: What about for people who are further along, and behind on their loans or teetering on that financial edge?

A: Find out about the help that's available. The federal government has several repayment programs that can cut a borrower's payment to a percentage of income, but it's not as easy as it should be to enroll in these plans. People have to search online to learn about the programs and call their servicers to ask about them. For some people, this will provide real help.

Q: The cost of college is a huge, underlying part of this student debt conversation. How do we meaningfully attack the cost problem?

A: One of the ways we can do that is to make sure that colleges have skin in the game for getting their students educated and able to repay any money they borrow. It's going to take everyone working hard on this: the colleges, the government, and the students. We've all got to push in the same direction on bringing down the cost of school.

I'll say one more thing. Three out of every four students today is in a public university. When I was growing up, the states invested in public universities to keep the costs low for students. Today, the states make much smaller investments than they made a generation ago. That means our students and their families have to pick up the costs. We need to make those investments in education so that all of our kids have a low-cost option for a high-quality education.

Q: What are the odds that in this political climate Congress can get something done?

A: You can't get what you don't fight for. We make change when we get noisy and insist that Congress follow through. There's so much at stake. Fixing the student-loan problem is about building a strong future for our country. That's where I'm focused and that's where I'm going to stay focused.

source: www.propublica.org