Paying for College: A Syllabus

CUs can school collegians on the smart use of student loan debt.

September 15, 2015

It’s back-to-school time again. I had a recollection of sitting in college on the first day, and being handed a long, intimidating document known as a syllabus, “an outline or a summary of the main points of a text, lecture, or course of study.”

Such agendas assist students in not only understanding rigors of the course and meeting deadlines, but also in formulating success-finding strategies.

Another rigorous agenda that college students should consider is how to pay for college. There are many factors and considerations for students in not only repaying college debt but in determining how much to accept in the first place.

This week, examine ways students seek funding, criteria and considerations in obtaining loans, and repayment trends, challenges, and strategies.

Can tomorrow’s students learn from the experiences of today’s borrowers? Where is your credit union on the college funding syllabus?

‘In school you’re taught a lesson and then given a test. In life, you’re given a test that teaches you a lesson.’ --Tom Bodett, American author and actor

First, an exploration of possible college funding sources and variables that affect students, their families, and lenders.

When It Comes to Student Loans, There’s No Simple Nudge,” says Brookings. Conversation surrounding large student loan debt is prevalent, but what’s missing in the discussion “is the question of how we can help students make informed borrowing decisions in the first place.”

When students make good decisions upfront and borrow according to their personal circumstances, fewer issues regarding repayment and debt management will arise.

The complicated decision about how much to borrow should include consideration of likelihood to graduate, earnings to expect in a chosen field, and other examination of cost/benefit analysis in taking a loan.

Many students tend to borrow the full amount they are offered even if they don’t need it all.  Other times, student who might find loans advantageous do not even apply.

To help inform students, Brookings suggests:

• Colleges can encourage students to investigate necessity of federal loans rather than relying on some existing strategy to pre-package loans that may not be ideal for the individual.

• Educational messaging during the Free Application for Federal Student Aid process to discuss varying monthly payment possibilities and importance of major in determining loan amounts. High schools and civic organizations can also help educate.

• Loan counseling can be provided by impartial entities using interactive technologies and “delivered at a large scale.”

Students should also consider their own assets as a determining factor in loan amounts, says U.S. News & World Report“Student-owned assets… reduce aid eligibility more than parent-owned assets do, while some assets aren’t counted in the financial aid formula at all.”

Four funding sources are examined:

  1. College savings accounts. 529 plans come with tax advantages.
  2. Uniform Transfers to Minors Act accounts.  Student assets lessen aid eligibility by 20% of value.
  3. Retirement accounts.
  4. Income. “Assets are much less a factor in the whole formula than income is.”

College students are getting creative and implement social media in seeking funds. notes a growing trend to crowdfunding by students who ask for financial help.

Crowdfunding site GoFundMe categorizes educational funding. In 2014, 140,000 of these accounts were opened totaling $17.5 million—an increase of 280% from the year before.

Parents Are Shelling out More Money for Kids to Attend College,” says Fortune. Mom and dad were generous in 2014-2015, the article says, “reclaiming their place as the primary source of college funding for the first time since 2010.”

Savings and income given by parents account for 32% of college costs, and parents pay more as college costs escalate. On average, families spent $24,164 this year, up 16% from $20,882 in 2014.

“The majority of families did not take out loans… When they did, the students were the ones who signed the dotted line three-quarters of the time.”

And, don’t forget scholarships. Scholarship AMERICA, the nation’s largest provider of private scholarships, awarded 125,000 students in excess of $236 million in scholarships in 2014.

‘Education is what remains after one has forgotten what one has learned in school.’ --Albert Einstein

An examination of student loan defaults provides interesting commentary on the educational debt landscape.

The “Heaviest Debt Burdens Fall on 3 Types of Students,” according to U.S. News & World Report. Contrary to what might be expected, the typical undergrad student is not the defaulter.

“It’s really important to understand exactly… the people who are borrowing unmanageable amounts of money. There’s not one solution for all of them,” says Sandy Baum, student debt expert.

She identifies three groups of debtors borrowing perhaps unwieldy amounts:

  1. Graduate students are allowed to “borrow unlimited amounts from the federal government up to the cost of attendance,” and 65% of those in 2012 borrowing more than $50,000 were grad students.
  2. Graduates of for-profit schools comprised 25% of those graduating in 2012 with more than $50,000 in debt, compared to 6% from public 4-year schools. Twelve percent of private nonprofit school grads held similar debt.
  3. Dropouts comprise 59% of those with debt $1,000-$10,000 and are less likely to repay.

Almost seven million American student loan debtors hold debt on which they’ve not made any payments in at least a year, notes The Wall Street Journal.  About 17% of all borrowers are “severely delinquent,” up 6%, or 400,000 borrowers, from the prior year.

Student debt has tripled over the last 10 years, amounting to $1.19 trillion, “a crushing burden for more Americans.”

Those who have defaulted owe a median $8,900, and those attending for-profits “account for a disproportionate share of defaults.”

An article at PayScale concurs. “The reality is surprising: Borrowers who owe the most are least likely to default.”

This is because those who owe larger amounts also tend to have larger earnings upon graduation, and can accommodate larger loan payments.

“The default rate is lower for grad students than undergrads: 7% compared to 22%,” and 51% of defaulters have less than $10,000 in loans.

Some suggest innovations like automatic income-based loan repayment programs. But “the ultimate goal is not to avoid borrowing—it’s to avoid borrowing money you won’t be able to pay back,” and students need to make choices about their educational investment based on their individual circumstances.

Getting that degree is just the beginning; it often comes with a lingering price tag. Per Carol Burnett, “We don’t stop going to school when we graduate.”

LORA BRAY is an information research analyst for CUNA’s economics and statistics department. Follow her on Twitter via @Bray_Lora and visit the CUNA blogThe Research Roundup: Economic Perspectives.