As the country struggles to recover from the 2008 financial crisis, student loan debt has grown by more than 60 percent in the last five years to reach over $1 trillion, surpassing credit card dues as the leading cause of debt in the United States.
The issue drew national attention in late June, when it seemed Congress might not pass legislation in time to prevent the interest rate on subsidized Stafford student loans from doubling from 3.4 to 6.8 percent July 1, which would have meant a significant increase in monthly repayments for those with federal loans.
This potential rate increase raised concern at institutions across the nation, including Brown, where 41 percent of 2010 graduates owed an average of $15,530 in federal loans, according to a study by the Project on Student Debt. The University's Office of Financial Aid worked with the Office of Public Affairs and University Relations to educate local representatives about how the decision would affect students, said James Tilton, director of financial aid. And Anthony White '13, president of the Undergraduate Council of Students, teamed up with his peers at Providence College and the University of Rhode Island to write a letter urging Congress to act.
The $6.7 billion measure eventually passed in Congress June 29, maintaining the rate at 3.4 percent and saving 7.4 million students an average of $1,000 in loan payment fees, according to an Education Week article. But experts say it is little more than a stopgap - pending Congressional action, the provision will expire in one year, allowing the interest rate to double in 2013.
'A much larger issue'
Interest rates are only part of a much larger issue, said Lauren Asher '87.5, president of the Institute for College Access and Success. Among other factors contributing to debt, federal Pell Grants will be at their lowest value ever in the upcoming year. For the 13 percent of Brown students who received Pell grants in 2009-10, the $4,215 average award already covered less than 11 percent of the year's tuition, according to the Institute for College Access and Success.
Roughly half of graduates owed an average of $22,832 total in 2009-10, according to the University's financial aid office. Nationally, 67 percent of students averaged $25,250 in debt, according to the Institute for College Access and Success.
The debt's greatest impact has been on students of for-profit colleges, who now receive roughly a quarter of all federal student aid. Students at public institutions have also felt the effects of state cuts to higher education, which have caused tuition and fees to increase 72 percent from 2001 to 2011, according to data from the College Board. Costs have climbed 29 percent nationwide and almost 56 percent at Brown over the same period.
"The reason we're seeing student debt grow over the last generation is college costs have continued to outpace both family income and available grant aid," Asher said. Record numbers of enrollment are partially to blame, but the share of college students with loans has also increased from one-half to two-thirds, she said.
Nevertheless, the media's attention to students with extreme debt can be misleading, she said. Students finishing a bachelor's degree with over $100,000 in debt account for less than 0.5 percent of all borrowers. Of Brown students with no-loan packages in 2011-2012, only 2 percent borrowed over $12,501, according to graphs provided by Tilton.
"I know there are a lot of headlines out there that talk about 'crisis' and this sort of thing, but I think that really is overblown," said Haley Chitty, director of communications for the National Association for Student Financial Aid Administrators. "The reality is most students borrow 20 to 25 thousand dollars, and given the return on higher education, for most students that's a very good investment."
The University's policies
Concern over high debt levels is mostly reserved for students at expensive private colleges that, unlike Brown, do not guarantee to meet demonstrated need, said Ronald Ehrenberg, director of the Cornell Higher Education Research Institute.
Brown's current financial aid policy has been in place since 2008, when the University eliminated loans for students whose family income is less than $100,000 and ceased to require financial contributions from parents making less than $60,000 per year.
Last year, 63 percent of the roughly 2,600 students who received need-based financial aid did not have loans in their initial financial aid packages, while the rest had $3,000, $4,000 or $5,000 loans based on family income. The number of student borrowers remained roughly the same between 2008 and 2011, and - with the exception of 2010, when it climbed to $22,832 - the average debt increased only marginally from $19,390 to $19,463, according to the graphs.
"Our goal was to stop the increase in the average debt at graduation ... and we're doing that," Tilton said.
But compared to other Ivy League schools and peer institutions, the University still ranks as one of the highest in both the percentage of students graduating with debt and the average amount owed.
"We'd love to see that reduced to $15,000, which is much more in line with the average burden of Ivy Plus schools," said Alex Mechanick '15, president of the student group Brown for Financial Aid.
Some colleges, including Harvard, Princeton and Amherst College, have eliminated loans from their financial aid packages entirely, made possible in large part by available resources and budget allocations, Tilton said. But even students at these schools are graduating with debt.
"Even though students have no loans in their packages, they still borrow for a number of reasons," he said. "The fact that students will choose to use loans to help pay for college was the point of what we were trying to do in 2008 when we made the change."
It's the job of the financial aid office to make sure students make the most of their options, Tilton said. Students should maximize the use of federal loans before borrowing privately.
Undergraduates under age 24 are eligible for up to a total of $31,000 in subsidized Stafford loans, which offer protections and benefits like loan forgiveness and tax-deductions that private lenders do not.
Borrowers with extreme debt balances are most often those with private loans, Chitty said.
"It's really critical that students and parents know the difference between theses two types of loans and only use private loans as a last resort," he said.
Consequently, schools are urged to adopt certification programs under which all private borrowing has to be approved by the school. Brown's financial aid office has a list of pre-approved lenders, and those requesting to borrow privately who have not taken advantage of all federal loan options are contacted by a counselor. Including graduate and professional students, private lending has decreased from $7 or $8 million to roughly $2 million over the last four years, Tilton said.
Managing student debt
Helping students and parents to make informed decisions before they borrow is key, Asher said. The Consumer Financial Protection Bureau and the Department of Education collaborated on the "Know Before You Owe" initiative, and all colleges were required to have net price calcul
ators on their websites starting last October.
"I think the financial aid community around the country had to change and adjust their conversations with students and families not just about financial aid but how to finance an education, and I think we do that well here," Tilton said.
Brown's loan office helps indebted students and alums navigate their borrowing and repayment options. Under the income-based repayment program, which was extended to all federal loan borrowers in 2009, monthly payments are proportionate to the borrower's income rather than fixed.
But the policy is mostly geared toward students at risk of defaulting on their loans, Chitty said. While more than five million Americans are past due on at least one student loan according to the Federal Reserve, Brown has one of the lowest default rates in the country, at 1.5 percent in 2010, Tilton said.
By working to borrow modestly and living within their means, students can keep debt levels in check, he said. It is also important for students to estimate how much monthly loan payments including interest are likely to cost and to consider the earning potential of their chosen career path in order to make responsible decisions about borrowing, he said.
For some students, that means having to rethink their post-graduate plans. "If I didn't have the financial strain, I feel like I wouldn't even go down the pre-med route. I would just embrace what I'm studying without worrying about whether or not I'm going to get a job or financially secure myself," said King John Pascual '14, a Herald business staffer who started to receive aid a year ago when he gained U.S. citizenship, in an interview with The Herald last spring.
Unemployment for recent college graduates aged 20 to 24 reached 9.1 percent in 2010, the highest annual rate on record. And even in a boom economy, picking a lucrative career is never a sure bet, Asher said.
But the University's financial aid programs were designed with the goal of helping students graduate with options, Tilton said. "I think that Brown students have several choices and many choices because of the way we manage their student loan debt.
Mechanick would still like to see a significant reduction in the average debt, but is hopeful that President Christina Paxson will consider it a priority, he said. "We're really excited to have a new president coming in. We think that now is a great time to really commit to making big, bold changes," he said.
On a national level, Chitty remains optimistic that more careful thinking on the part of borrowers and a predicted decline in enrollment will help alleviate student loan debt. "It doesn't make a great headline, but it's not all gloom and more debt," he said.
Others are not so sure. The government's lack of bipartisanship makes the economic improvement necessary to alleviate the loan debt crisis very unlikely, Ehrenberg said. "Unless saner heads get together, gridlock is going to stay at the federal level, and that's going to create real problems for higher education and for students."
