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It’s no secret that student loans are out of control. We’ve now reached $1 trillion in student debt, and that hurts new grads at the start of their careers. Many graduates struggle to balance education debt with major purchases, including homes and cars, and some even move back in with their parents or delay marriage and children. These struggles affect not just new grads, but the entire economy, as experts believe that marriage and family are vital building blocks of a healthy financial environment. And this isn’t a just a problem that goes on for a few years after graduation: student loan debts often take about 20 years to pay down.
Clearly, student debt is a real problem. So who’s responsible? While it’s easy to point to schools with rising tuition as the root of the student debt problem, it’s not fair to say that all colleges are irresponsible participants. There are many colleges working creatively to reduce, or even eliminate, student debt.
High Stakes for Schools
Debilitating student debt doesn’t just hurt graduates; it hurts schools, too. A survey from the National Association of Independent Colleges and Universities indicates that student loan troubles are coming between students and higher education. Most colleges â€” 57% â€” said they had more than 10 students who had been unable to secure a private loan for the current academic year, and 49 colleges said they had at least 50 students who had been unable to secure loans. Some students find a way to make it work with institutional repayment plans, parent PLUS loans, or troublesome credit cards, but for others, solutions don’t come easy. Almost half of private colleges reported that students are dropping out or switching to part-time status. Further, 17.7% of independent colleges are enrolling fewer returning students than expected.
Schools are feeling the crunch internally as students struggle to find money to enroll and graduate, but there are external pressures as well. Colleges and universities are increasingly being judged on loan debt and default rates. Let these numbers slip, and colleges can lose funding or drop in rankings. Additionally, President Obama put colleges and universities on notice, urging schools to “do their fair share to keep tuition affordable, provide good value, and serve needy students well.”
What Colleges are Doing to Fight Student Debt
While Obama’s presidential directive is just a few months old, several schools have made affordable tuition and a commitment to serving needy students a priority for years. There are a growing number of “no loans” colleges and even colleges that offer free tuition. Other schools provide students with extensive financial literacy education and management programs to keep them on a smart financial path in college and beyond.
Schools Without Loans
Since 2007, Davidson College has offered need-blind admissions, and it meets 100% of demonstrated need for accepted students. Students do not receive loans as part of their financial aid package. Davidson determines an expected family contribution and then provides grant money and work opportunities to meet the students’ needs.
“The impetus was the desire to allow students to come and make a major decision without feeling like that decision had to be dictated by the ability to pay back that loan,” explains senior associate dean and director of financial aid David Gelinas. For a student with a $40,000 need, $2,000 of that need might be made up with work, which is typically study- or community-service-based, and the remaining $38,000 provided by grants. Davidson is ranked No. 12 among national liberal arts colleges by U.S. News & World Report.
Even high-profile universities including The University of Pennsylvania have a no-loans policy, which has been in place since 2008. Penn president Amy Gutmann has made increasing access one of her priorities, and the no-loan program is a big part of that. Like Davidson, Penn combines work-study with grants, meeting 100% of students’ needs without loans.
“It is our firm belief, from President Amy Gutmann and the Board of Trustees, that our no-loan program is the right thing to do nationally and the right thing to do for Penn,” says Joel Carstens, University of Pennsylvania director of financial aid. “We’ve simply allocated the resources necessary because it’s the right thing to do.” Those resources include an undergraduate financial aid budget of $188 million, one that’s grown by 129% since President Gutmann took office in 2004. This growing budget is made possible with the university’s Making History campaign, which includes a $673 million goal for student aid.
“We want to enable students to make career and life decisions based on their interests, talents, and passion â€” not on whether they’ll make enough money to pay off their student debt,” says Penn president Amy Gutmann. “Especially in these challenging economic times, we want prospective students and their families to know that Penn is affordable.”
While Davidson and Penn allow students to take out loans to meet the expected family contribution or pay for necessities like health insurance, College of the Ozarks has taken a tougher stance with a true no-loans policy. Beginning in the fall 2013 semester, the college will no longer certify private loans for students. For more than 20 years, the college has not participated in federal or state loan programs, but this step completely wipes out the college’s already small debt load. Previously, 10% of graduates left with an average of less than $8,000 in student debt.
Students can pay for tuition with the college’s Work Education Program, which requires students to work 15 hours per week, plus two 40-hour work weeks at a campus job each year. Room and board, books, and the technology fee are the only student costs, but the optional Summer Work Education Program covers the cost of room and board. This program has been very popular: every fall, an average of 4,000 applicants compete for only 350 spots.
Effective Financial Management and Education
Restricting loans is useful for preventing student debt, but helping students create sound financial foundations is even smarter. Most colleges offer some sort of financial education resource to students, often aimed at incoming freshmen, but some schools take it a step further with money management courses, personal budget and repayment plans, and special assistance for financially at-risk students.
At Tidewater Community College, students must complete personal budget worksheets before the college will certify any loans. These worksheets require the students to create a realistic budget as well as a post-graduation repayment plan that fits within their projected salary.
“There has always been a little bit of disconnect between borrowing money and the obligation of repayment that comes up years later,” said Tidewater president Deborah DiCroce. Requiring students to see the full financial picture helps to ease that disconnect and makes students understand that the financial decisions they make in college can have a lifelong impact.
Other schools offer assistance and education to students who are demonstrating financial trouble. Syracuse University identifies students who are overborrowing from private lenders. These students are given generous direct grants for future semesters, but in return, they are required to attend money management courses until graduation. Students are also encouraged to find alternative sources of funding, including scholarships. This approach allows Syracuse to identify the students that are most at risk for serious financial trouble after graduation, stopping overborrowing before it becomes a real problem.
Special Programs for Low-Income Students
Assistance programs for low-income students are another popular approach for keeping student loans to a minimum. At the University of Florida, nearly two-thirds of students graduate with no debt, and those who do carry debt have an average load of $17,000, well below the national average of $27,000. This is made possible by a combination of factors, including below-average tuition, Florida’s state-run Bright Futures scholarship program, and the university’s low-income Florida Opportunity Scholars program.
Florida Opportunity Scholars provides a full ride to students who are the first in their families to go to college and whose family income is less than $40,000 a year. University of Florida senior director of media relations Steve Orlando explains, “If money is standing in the way of students going to school, we want to remove that problem for them.” In six years, this program has helped more than 2,600 students.
Tufts University also offers special resources for low-income undergrads, replacing student loans with scholarship grants. All undergraduates whose family income is below $40,000 are eligible.
The policy “enable[s] some of the neediest families in America to send their children to Tufts. It reflects Tufts’ enduring mission to provide access to students from diverse economic backgrounds,” says dean of undergraduate admissions Lee Coffin. The 2011 class, the first to benefit from this policy, was the most socio-economically diverse class in Tufts history.
The Impact on Students
Financial programs that fight student debt, whether they’re no-loans policies, financial education, or special resources for low-income students open access to students, and often at schools that might have otherwise been out of reach for students. These programs also offer unique educational opportunities that develop skills students will need after graduation, including financial management and work experience.
“Never in my wildest dreams would I have thought that I’d be able to go to Penn. Because of the generous financial aid Penn offered me, I now have had the opportunity to study here, learn so many new things, and meet many great people,” shares Penn student Michael Keramidas.
Schools that have implemented programs that combat student debt typically attract a more diverse socioeconomic student body, as evidenced by Tufts’ 2011 class. They’re not the only ones. “We’re seeing a wider socioeconomic range in our applicant pool than we used to,” reports Davidson College representative Gelinas.
Colleges with work-study programs like Davidson, Penn, and College of the Ozarks present more than just a great financial opportunity: they offer valuable work experience as well. This is more useful now than ever, as employers are increasingly seeking out candidates with both education and real life experience.
“Students who graduate from Hard Work U are at a distinct advantage upon graduation. They are well-educated, hard-working and are not burdened with debt. They can enter the work force and their communities and be producers and influencers,” explains College of the Ozarks representative Elizabeth Hughes.
As College of the Ozarks president Jerry Davis says proudly, “We’re a work college, not a debt college.”
Tactics for Fighting Student Debt
Graduating from college debt free isn’t a feat for a select few: it’s something that any student can do. Granted, it’s not easy, but it is possible. Making a commitment to avoid debt and taking advantage of every financial opportunity available to you can really pay off. Here’s how you can make it work:
- Just say no to debt. Yes, it is possible. Simply commit to avoiding student debt, and explore every available resource for funding that doesn’t require a loan. There are a growing number of educational options that do not require student debt, and we no longer live in a world where loans are the primary financial option for students. We’ve profiled some of the best educational programs with alternative resources, but they’re not the only ones. Many top schools have endowments and alumni donations that make generous grants possible, and smaller schools are often lean and resourceful enough to make financial programs work, whatever it takes. Popular schools without student debt include: Davidson College, University of Pennsylvania, College of the Ozarks, Princeton University, Berea College, and Cooper Union.
- Build a strong educational resume. Debt-free college options are available, but don’t assume it will be easy to get in. Top programs like Princeton and Penn are ultra-competitive. College of the Ozarks denies 3,650 of its 4,000 annual applicants. It’s difficult to get accepted to one of these schools, but don’t let that deter you from pursuing what they have to offer. Instead, rise to meet the challenge by working hard to create an educational resume that makes schools want to invest in you. Boost your GPA and become a well-rounded student with extracurriculars and volunteering projects. Take part in independent learning resources like massive open online courses (MOOCs) to show your initiative and commitment to education.
- Seek out every option available. We’ve discussed several school based grants, but there’s so much more out there. A seemingly endless array of scholarships are available for every student imaginable. Whether you’re the tallest in your class, have a knack for duct tape fashion, or demonstrate strong academic potential or financial need, there’s a scholarship for you. Plan to spend a significant portion of your junior and senior year of high school searching for and applying to scholarships. Be relentless in your pursuit. The money is out there, and often, all you have to do is ask for it.
- Don’t assume any school is out of reach. Low-income students often make the mistake of quickly dismissing the Tufts and Princetons of the world, assuming that they just can’t make such a high-profile (and likely expensive) option work. But the truth is that top programs are often more than willing to make an investment in bright students’ education, especially those that come from a low-income background. For many top universities, if you can get in, they’ll find a way to make it work for you financially, often without debt. Don’t be shy. Apply, and discuss your options with the financial aid office of each school you’re accepted to. You may be pleasantly surprised to find generous grants, scholarship options, and work-study programs that do not require student loans.
- Create your own work-study program. Many schools replace student loans with work-study requirements, but if your school of choice doesn’t have this type of program, there’s nothing stopping you from doing it on your own. A part-time job or paid internship can help you gain experience, learn valuable time management skills, and of course, allow you to pay for school, in full or in part.
Sixty-eight percent of students in the U.S. graduate from college with debt, and on average, they carry about $26,000 worth of student loans, most of which will take up to 20 years to pay off. But you don’t have to suffer the same fate. The options are out there: you, too, can say no to student debt.