The ABCs of student financial success are at the heart of everything we do here at CampusLogic. In part one of this four-part series, I shared an overview of our ABCs—Access, Borrowing, and Completion, and the critical roles each plays in the student finance journey. In part two, I detailed the vital role accessibility initiatives play in the success of students making it to higher education's front door. A former Director of Financial Aid and a strong advocate for making higher education more achievable for all students, I’ll share data and connect you to industry research about the importance of borrowing in this, our third installment.
B is for Informed Borrowing
For CampusLogic, the issue of borrowing isn’t solely about "reducing what students are borrowing" to fund their their education. It’s about enhancing their understanding of what they’re committing to when they borrow, their repayment options, and the long-term implications of both debt without a degree and over-borrowing.
According to a Brookings study, half of all first-year students significantly underestimated their student debt. Even more shocking, 28 percent of first-year student-loan borrowers reported no federal debt—when in fact they did have debt.
These extremely concerning statistics are both unacceptable and completely avoidable. With student loan debt and delinquency increasing annually, we need to strike a balance of educating students about borrowing so they don’t get caught in the cycle of not knowing if, or what, they’ve borrowed.
Enhancing Student Loan Counseling
Counseling is an overlapping concept in the ABCs of student financial success. You’ve already seen counseling mentioned in parts one and two of this series. There are two key areas around counseling I’d like to share thoughts on. The first is the concept of standardized k-12 counseling that would provide more access to higher education. Second is the concept of enhancing student loan counseling.
But let's set the stage first. Would you ever buy a car or a house without having someone disclose to you what your payment is going to be, in detail? Unfortunately, this is the reality for many students who’ve signed on for higher education. A 2015 study revealed that 54 percent of student loan holders didn’t try to figure out how much their future monthly payments would be before taking on their loans. They simply signed on for the debt, ‘kind of’ knowing the total price tag—but they didn’t try to figure out what that meant on a month-to-month basis. Kind-of isn't good enough. Kind-of is dangerous.
The first steps in solving the student loan repayment crisis are ensuring students know they have loans, and that students are provided the proper tools to understand what their payments will look like after graduation. With the proper education and planning tools in place, this is so easy to do.
However, there are rules around such requests. Annual student loan counseling was once standard. The current standard is once in a lifetime. While legislators emphasize the need to reduce borrowing, the Department of Education simultaneously emphasizes that additional requirements, such as loan counseling, can’t be put in front of a student to get federal loan dollars. Not having people take a financial wellness course before taking out student loans only adds to the borrowing crisis. As part of the student financial success movement, we support the reinstatement and enhancement of personalized and interactive annual loan counseling.
Standardizing Aid Notification and Annual Loan Letters
In addition to annual loan counseling, there needs to be more standardized and personalized communication to students around the topic of borrowing, their actual debt, and resources to help them manage it.
The current state of financial aid notifications is largely confusing. A 2018 study by uAspire pointed out that the Federal Direct Unsubsidized loan was referred to by 146 different names on 454 award letters. That’s 146 ways higher education institutions are saying the same thing. (No wonder students are confused.) Additionally, one third of award letters in the uAspire study contained no cost information, something that takes me back to my earlier comment about buying a house or a car without the vendor disclosing the cost before you sign.
If students—especially first-generation students for whom all of this is very new and who have few people in their lives who can help them comprehend it all—are to understand financial aid packages and compare the true price of an institution, there needs to be consistency. This consistency needs to cross over into how aid is displayed, the data elements available, and the terminology used. The success at Ivy Tech Community College System—the largest system in Indiana, serving 180,000 students across 19 campuses—shows that consistency achieved through technology is highly effective, and personalized.
Establishing award notification standards for institutions, including minimum requirements for data elements associated with cost and funding options, and the use of personalized content to address unique student needs, drives student-centric financial aid to the levels they should be at. And they’ll pay dividends quickly, helping to create more informed borrowers.
Similar strides should be made for annual loan letters, informing students of the status of their loan debt and estimated payments. Some states have already begun to implement these letters, but loan letters should become customary across the board, through visible, technologically adaptive channels with active confirmation. Hopefully by enhancing the counseling options and tying in such notifications, we can better educate students on how much they’ve borrowed.
Enhancing Employer Investment
As a way to accelerate repayment on student loans, not only do students and states need to be investing, employers also need to be active participants in the investment of higher education through employee benefits. Because employers are reaping the rewards of the investment that students are making up front in their education, they too should start putting more skin in the game. They should also be rewarded for it in the form of tax policy.
Enhancing employer investment feels like it should be an easy win, but in 2017, only 4 percent of Society for Human Resource Management members say their organizations offered a student loan repayment benefit. And even for that 4 percent, the “benefit” is viewed as taxable compensation from federal, state, and security income levels. The current tax policy discourages implementation of loan repayment benefits, causing companies to funnel resources into other areas within a benefits package.
We support legislative initiatives to provide a clearly defined tax benefit to student loan repayments made by employers. An example is the proposed H.R. 795-Employer Participation in Student Loan Assistance Act that would expand Section 127 benefits to repayment of qualified student loans.
Employers can also reinvest through:
- Job training and hiring partnerships, such as the one between ASU and Starbucks that pays full tuition for Starbucks employees attending ASU online; or between several commercial airlines and aeronautical universities that offer direct pathways to post-grad employment.
- Establishing educational savings or financial wellness accounts that could be used to apply to student loans each year.
Studies show that these employer-funded education initiatives are not only appreciated by employees, but 1 in 3 millennials say a college savings benefit is a top priority in seeking employers. Such programs can also be designed to bridge employment and skill gaps.
By addressing these key components of borrowing, everyone can win. In the final installment of this series, I discuss ways significant obstacles to completion can be eliminated for students before college even begins.