"Student debt crisis" is a phrase we hear all too frequently in the media, and the most recent statistics are staggering, with the total amount of debt having leapt to $1.4 trillion in America.
This newest numbers break down roughly to more than 44 million Americans with student debt, seven million of which are also in student loan default.
The student debt crisis is very real, but what is its true impact?
It’s no secret that student loans are out of control. According to Forbes, as of February 2017, we reached $1.3 trillion in student debt. The average graduate of the class of 2016 has $37,172 in debt, while the average entry-level position for the class of 2017 pays $47,785. If it sounds like that’s improved, it has. Still, starting post-college life with the need to pay student loans and seek student loan help hurts new grads at the start of their careers. Many graduates struggle to balance student loan payments 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. In more recent years, financial resource specialists have noted the impact of delinquent student loan debts--a negative indicator for credit and the ongoing ability to make large purchases or even start new businesses. Further, student loan debt disproportionately affects women of color, as they often end up taking out more loans and stay in repayment longer. Make no mistake: student loans are not problems that go on for just a few years. Student loan debts often take about 21 years to pay off.
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 to offer student loan help and creativity to reduce, or even eliminate, student debt.
The Impact of Student Loan Debt on Students
Recent studies show an alarming seventy percent of students in the U.S. graduate from college with student debt, and that the average debt carried by the class of 2016 is $37,172 worth of student loan debt, up 6% from 2015.
Statistics show that paying off student loans takes an average of 21 years—a very heavy burden for students to bear as make their way into the workforce.
However, there are many in the education system working hard to help students enter - and exit - the world of education student debt free, through a variety of methods.
Options include financial programs that fight student debt, such as no-loan policy schools and and those that educate heavily on financial education, as well as institutions that focus on student loan help through alternative methods to student loans, such as grants or special resources for low-income families.
These options are often led by universities and leaders championing to close the gap when it comes to financial need for an education and the burden of graduating college with crippling debt.
Not only are these programs designed to provide educational access to students that might otherwise find it out of reach, but they also offer unique options to develop financial planning skills invaluable to students after graduation, including financial management and work experience.
Penn University is a school leading the charge for change when it comes to financial aid. They announced a whopping financial aid budget for 2017-2018 of $224 million - the largest in the university’s history - while increasing undergraduate charges by 3.9%.
Since Amy Gutmann became president in 2004, Penn’s financial aid budget has grown by 171%, and the University has awarded $2 billion in undergraduate aid to a total of 17,253 students.
One Penn student, Michael Keramidas, had to say, "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."
Tactics for Fighting Student Loan 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. It may sound glib to say, "The best way to pay off student loans is to avoid them," but 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, 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 Penn are highly competitive. College of the Ozarks denies 3,650 of its 4,000 annual applicants. It is 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 great making clothes from duct tape 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. Scholarships, while sometimes inconvenient to apply for, are a lot more fun than an eventual trip to a student loans repayment seminar.
- Don’t assume any school is out of reach.
- A 2008 study by the American Council on Education found that there was a drop in low-income students applying to college over a two-year period, likely due to the perceived cost of college. But the truth is that top colleges and 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.
Seventy percent of students in the U.S. graduate from college with debt, and on average, they carry about $37,000 in student loans, most of which will take up to 21 years to pay off. Student loan help is something many of them need, but you don’t have to suffer the same fate. The options are out there: you, too, can say no to student debt.
How Schools Get Hurt
Paying off student loans hurts more than just graduates—it hurts schools, too. A survey from the National Association of Independent Colleges and Universities indicates student loan troubles are coming between students and higher education. Most colleges 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 easily. 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 a college 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." Indeed, colleges across the country feel the pressure to change their tuition structures to more transparent and sustainable numbers.
There’s a clear correlation between rising student debt and the drop in nationwide student enrollment. Enrollment in the United States peaked in 2010 at 21 million, but by the fall of 2014 (the most recent year government data is available) there were 812,069 fewer students walking around college campuses. "Too many students and families feel that college is out of reach," says Mitchell, U.S. Under Secretary for Education. "Never in our history has the opportunity to complete college mattered so much to Americans' life outcomes."
While students from lower-income families are inevitably at risk of suffering in this climate, the National Student Clearinghouse Research Center report also states that the impact can be seen across colleges with a steadily dropping enrollment rate, down for the fifth straight year. The numbers have been steadily declining, with overall higher education enrollment down 1.4% in the fall of 2016 from the previous fall. For-profit institutions saw a nearly 15% decline, and community colleges declined by 2.6%.
What Colleges are Doing to Fight Student Loan Debt
In order to combat student debt and its debilitating effects on students, families, and the economy as a whole, many states and colleges are taking drastic measures.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 that have implemented programs that combat student debt typically attract a more diverse socioeconomic student body. "We’re seeing a wider socioeconomic range in our applicant pool than we used to," reports Davidson College representative David Gelinas.
"Approaching the tenth anniversary of establishing grant-based financial aid among the highest of our priorities, Penn’s Ivy League education is more accessible and affordable to students with the greatest promise from all backgrounds than ever before," said Penn president Amy Gutmann. "Doubling the number of first-generation college students is just one among the many educational and societal benefits that flow from Penn’s doubling of financial aid and our outreach efforts, which we continually strengthen. As the first in my family to attend college, I understand the transformative impact that affordable access to high quality higher education can have. It is the single greatest gateway to economic opportunity and has an indelible impact on society. This is the enduring value fueling Penn’s grant-based financial aid program."
According to Gutmann, "Penn’s grant-based financial aid program has ensured educational access to a Penn education for the brightest students regardless of socioeconomic background." At Penn, one out of eight freshmen will be the first in their families to graduate college—up from one in 20 in 2004—and a quarter are under-represented minorities.
Schools without Loans
According to U.S. News & World Report, more than 50 colleges across the U.S. have pledged to eliminate or reduce the need for student loans. For anyone interested in lowering or avoiding student loan payments, colleges without loans are a great option.
- Davidson College
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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.
- University of Pennsylvania
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To help mitigate student loan debt, 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, 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."
- College of the Ozarks
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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.
Tuition-Free Programs
In 2017, recognizing the difficulty many people have paying off student loans, New York announced a plan to create a tuition-free degree program, known as the Excelsior Scholarship. California has about 50 tuition-free community college programs.
On a more granular level, some colleges simply do not charge tuition. There are, of course, qualifying conditions, but U.S. News & World Report has an excellent list of these colleges and their terms. For instance, if you elect to go to Barclay College and live in the dorms, you can qualify for free tuition and avoid student loan debt. If ranching is of interest to you, you may want to look into the free tuition program at Deep Springs College, where working on the ranch is how you "pay off" your tuition, room, and board.
Effective Financial Management and Education
Restricting loans is useful for preventing student debt, but helping students create sound financial foundations and student loan payment plans 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.
Alternately, due to the looming student loan crisis, many notable publications have released their own how-tos regarding paying off student loans and financial responsibility. "Seven Ways to Prepare for Student Loan Repayment" from U.S. News & World Report is one such resource, and it includes both common sense-based and financially-based advice. Even the Federal Student Aid website now offers an educational and financial checklist to help students and parents alike navigate the potential pitfalls of too many loans.
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, ranked by The New York Times as #6 at helping low-income college students earn a college education, 48% of students receive some kind of need-based financial aid. The average granted is $6,910. In-state tuition and fees are slightly less than the average financial aid package at $6,389. 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.
Leveraging Work-Study
While Davidson and Penn still 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 no longer certified private loans for students. For more than 20 years, the college has not participated in federal or state loan programs, but this step completely wiped out the college’s already small debt load. Previously, 10% of graduates left with an average of less than $8,000 in student loan debt.
Students can pay for tuition with the college’s "Hard Work U" 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.
"We are an official work college, so our students work rather than pay for their education. In a time when many students leave college saddled with debt, our students are able to graduate debt free. This does not go unnoticed by potential students, parents, and anyone closely examining the state of higher education in this country!" shares Valorie Coleman, public relations director for College of the Ozarks.
The value of the program has certainly not gone unnoticed by the Princeton Review, one the many media that have praised the program, recently including the school on their list of " Colleges That Pay You Back: 2017 Edition."
When speaking to just how the school made his list, Robert Frank, Senior VP/Publisher of the Princeton Review touts that "they stand out not only for their outstanding academics but also for their affordability via comparatively low sticker prices and/or generous financial aid to students with need—or both."
Frank went on to add that students who attended colleges with programs like Work Hard U "have access to extraordinary career services programs from their freshman year on, plus a lifetime of alumni connections and post-grad support."
Colleges with work-study programs like College of the Ozarks, Penn and Davidson 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 within the future of job growth.
As College of the Ozarks president Jerry Davis says proudly, "We’re a work college, not a debt college."
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 debt repayment or student loan payment plans, and special assistance for financially at-risk students.
Syracuse University has one of the best-ranked financial literacy programs in the country - not just due to their offering assistance to students who are demonstrating financial trouble, but because they also place a primary focus on educating students in financial literacy through a number of workshops and resources available, one-on-one financial consulting, and helping students identify if they are overborrowing from private lenders.
While students are given generous direct grants for future semesters, it doesn’t come for free; 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.
"The work done by Financial Literacy Coordinator Derek Brainard and the financial literacy team reflects our ongoing commitment to students and their success, both during and after college," says Ryan Williams, Interim Senior Associate Vice President of Enrollment and the Student Experience.
At Tidewater Community College, students must complete personal budget worksheets before the college will certify any loans, in addition to creating financial outlook that requires the students to create a realistic budget as well as a post-graduation repayment plan that fits within their projected salary. 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.