Wednesday, July 16, 2014

Hoosiers take on student debt.

Over the years, Pink Slip has opined on a few occasions about student loans. So as the fifth anniversary of my first student borrowing post approaches, here I am again.

Except this time, it’s a bit more upbeat. At least if you’re a student at the University of Indiana.

Amid the furor over the $1.2 trillion in U.S. student debt, the seven-campus system decided to tell students annually before they take out loans for the next year what their monthly payment would be after graduation. (Source: Bloomberg)

I’m sure that there are some who think that college students should smarten up on their own, that this is one more sign that the nanny state is out of control, out for control, trying to protect us from ourselves. The same nanny state that wants to outlaw Big Gulps. That wants to keep consumer warnings on OTC drugs (may cause blindness, liver failure, suicidal thoughts, and an erection that lasts more than four hours). The same nanny state that one day will no doubt expect us to wear helmets in our showers. (Hmmm. Come to think of it, this might not be a bad idea for us oldsters, especially if the helmet has an embedded device that calls 911 when it hits the tile.)

But. I. Digress.

Indiana has found that a simple little reminder about the true costs of borrowing is paying off:

Federal undergraduate Stafford loan disbursements at the public university dropped 11 percent, or $31 million, in the nine months that ended March 31 from a year earlier, according to Education Department data. That’s more than fivefold the 2 percent decline in outlays to four-year public schools nationally.

Students aren’t dropping out. They’re just making more intelligent decisions about how to pay for their education.

All colleges and universities have to provide some guidance on borrowing when students start school, and some guidance on repaying when they’re nearing graduation. But what Indiana’s doing is letting them know every step of the way what they’re signing up for when they sign on that dotted line.

Natalie Cahill, 22, who is about to start her final year in nursing at Indiana’s flagship Bloomington campus, said that after receiving her debt letter she decided to search for more scholarships.

“When you take out loans for the year, you just see a smaller number than the grand total,” Cahill said. “Seeing the letter definitely put things into perspective.”

Students are applying that perspective. They’re applying more of their summer earnings to “the necessities”, rather than using it for the fun stuff. They’re sticking with their old smartphone, rather than grabbing for the shiny new device.

How’s Indiana going about it?

“We are having more contact with the student where they can say ‘I don’t want this,’ or ‘I want less,’” said Jim Kennedy, associate vice president and director of financial aid at the Indiana system. “If they know at all times their debt, and the repayment, it helps with a lot of planning….We added more stopping points in the process,” Kennedy said. Students “have to step back and really understand how much loan debt they’re taking on.”

I love what they’re doing.

Oh, sure, college kids should be smart enough to figure this out on their own. But they’re really not. And  it’s interesting to see students respond pretty intelligently when the consequences are laid out for them.

I would hope that other colleges and universities will follow Hoosier suit.

It’s become entirely too easy for kids to take on debt to finance their education. And the ease of taking on that debt makes it all to easy to buy those sneakers, take that spring break trip, go to that concert. Only to fast forward a few years and find out that payback’s a bitch.

Raising student awareness about the true costs of borrowing works on a couple of fronts.

Students will start their working lives with less of their paycheck committed to debt servicing. Leaving them more to devote to fun, adventure, condo down payments, and saving for their old age.

And by helping them realize that there are spending tradeoffs out there, they’ll be better equipped to manage the budgets that most of us have to live within. Some of those budgets are largely informal, others are down to the penny. Some are pretty darned elastic, others are tight. But most of us in the adult world know, more of less, what’s in the wallet of our life. The sooner “the young folks” figure this out, the better.


In case you share my interest in student loans, here are  my generic  2012 rant, a post on borrowing for law school, one on young adults who – this is pretty unimaginable – believe that debt is cool, my ur student debt post – September 2009 – on a misguided BU student who took on an extra $10K in debt (wow: I originally typed that as “$10K in death”) to live in a luxury dorm.

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