Debt 101 should be a requirement
A dollar sign followed by a number and the word “trillion” is typically reserved for discussions of the national debt, defense spending and a handful of the world”™s largest corporations.
Now, U.S. student loan debt is on the verge of joining that exclusive club.
The situation that was largely swept under the rug in the wake of the financial meltdown now threatens a persistently weak economy as greater numbers of recent college graduates enter delinquency and default.
Representatives of several Westchester County colleges and universities said the issue is made worse by students who take out more loans than they actually need, but education and legal experts countered that colleges are not doing enough to educate students about how their debt will affect them after graduating.
Student loan debt has increased $663 billion since 2003, hitting $904 billion in the first quarter of 2012, and is the only form of consumer debt to “substantially increase” since the peak of household debt in late 2008, according to the Federal Reserve Bank of New York”™s latest quarterly report on household debt.
The issue has been exacerbated by economic conditions.
In the 2010-2011 academic year, the average total cost of attending a four-year, undergraduate, private, nonprofit institution was $39,772, an increase of 4 percent from the previous year, according to the National Center for Education Statistics.
The average total cost for a student to attend a public institution in his or her state was $20,114, up 4.1 percent from the 2009-2010 academic year.
At the same time, median earnings for full-time workers ages 25 to 34 fell by 4 percent from 2009 to 2010, from $50,700 to $48,700, according to NCES data. The NCES is a division of the U.S. Department of Education.
While obtaining a college or advanced degree is still the surest way to find employment, college administrators recognize the dangers posed by student loan debt and delinquency.
“The wild card here is the economy,” said James Gathard, vice president of institutional compliance and student financial services at Monroe College. “So we can minimize their borrowing, we can make them an educated consumer,” but still, if they can”™t get a job, he said, they”™ll be facing possible delinquency.
The New York Fed reported that the percentage of student loans that are more than 90 days delinquent increased from 6.13 percent in the first quarter of 2003 to 8.69 percent in the first quarter of 2012.
Both Monroe College, a private, for-profit university with campuses in New Rochelle and the Bronx, and Pace University, a private, nonprofit university with undergraduate campuses in Pleasantville and Manhattan, have instituted programs over the past several years that instruct incoming students and their families about the ramifications of taking on excess student loans.
Pace financial aid administrators will often meet with admitted students before they even enroll, said Robina Schepp, vice president of enrollment management.
“We know that our students generally have higher employment rates than the national average and we really think it”™s because we have this focus and counseling from day one,” she said.
Monroe College last month was named one of three recipients, along with Syracuse University and Shaw University in Raleigh, N.C., of the United Student Aid Funds Inc. 2012 Excellence in Debt Management Awards for the college”™s DREAM project.
The nonprofit USA Funds, based in Indianapolis, was founded in 1960 to help families finance rising college costs.
As part of the DREAM program ”“ short for Debt Reduction, Education, Assessment and Management ”“ Monroe College set up a department that works exclusively with students in order to help them understand their loans and their repayment options.
“It”™s a consumer financial service dedicated to student loans,” Gathard said.
Monroe also offers a five-session financial literacy seminar to undergraduates, which is taught by faculty, administrators and graduate business students and expands on the work of the financial aid staff.
This fall, Monroe will begin to enlist undergraduates who have been through the seminar to serve in a peer leadership role for students who will be taking it during the coming academic year.
Gathard said that while students are able to borrow “enormous” amounts of money from private lenders, the peer-led seminar will focus on questions like “What kind of job do you think you”™re going to get?” and “How do you think you”™re going to be able to make those payments?”
Consumer debt attorney Leslie Tayne said most of her clients who are in delinquency or default were never educated about their student loans.
“I get that all the time, ”˜Nobody told me it was going to be like this,”™ or ”˜We really didn”™t know what was available to us,”™” said Tayne, principal of the Law Offices of Leslie H. Tayne P.C., located in White Plains, Mount Kisco and Melville, L.I.
She said it is important for colleges to be proactive.
“There should be a program that you”™re required to attend upon taking student loans on the payment process, the default issues that can come up and how to effectively manage it,” Tayne said.
However, said education consultant Jane Klemmer of Klemmer Educational Consulting L.L.C. in Briarcliff Manor, colleges aren”™t necessarily given incentives to create such programs.
“Some are starting to do it (provide advising services), but in reality there”™s a conflict of interest,” she said. “If you think about it, there are a lot of schools out there that are hurting. They rely on tuition dollars. They have to fill those seats … they don”™t want to be turning students away by asking them, ”˜How can you afford this?”™”