Before Reason Chandler could get his student loan at Tidewater Community College in Norfolk, Va., this year, he had to complete a budget. In one column, he estimated his current income and expenses; in another, he projected his cash flow after graduation鈥攅stimating his potential salary as an urban planner.
鈥淭his budget worksheet slows you down a bit and makes you realize, 鈥楬ey, I have to pay this money back,鈥� 鈥� said the 26-year-old, who says it took just 15 minutes to meet the college鈥檚 new financial-aid requirement. Despite qualifying for Pell Grants and veterans鈥� benefits, Mr. Chandler estimates he will have accumulated $45,000 in debt by the time he finishes his education, including a master鈥檚 degree.
鈥淚鈥檓 pretty confident that once I鈥檓 done with college, I鈥檒l be able to secure a stable job, start my career, and I鈥檒l be able to balance things out easily,鈥� he said.
Unlike a car loan or mortgage, payments on a student loan don鈥檛 start for years, and Tidewater President Deborah DiCroce said she wants students to think ahead about the implications. 鈥淚t is just fundamental education that attempts to connect the dots between borrowing the money and paying the money back, between the degree that the student seeks and the earning power of that degree,鈥� she said. 鈥淚t gives them a front-end sense of what they are getting into.鈥�
To help students better manage their debt, some college campuses and high schools are ramping up their financial-literacy efforts, where experts say such education should begin. But a squeeze on K-12 resources has hampered the expansion of programs even as the need for them has risen. Still, many students are eager for advice on how to handle their looming college debt, which, if not repaid, can hurt their credit and job prospects and follow them for life.
President Barack Obama last week announced help for student borrowers by accelerating income-based repayment plans to begin next year鈥攔ather than in 2014 as scheduled鈥攁nd pushing an initiative by the newly formed Consumer Finance Protection Bureau to provide clearer information about college costs.
Starting Early
鈥淒ebt is really a concerning issue. Over the past 10 years, things have been really bad and just getting worse,鈥� said Rich Williams, the higher education advocate for U.S. PIRG, an advocacy group in Washington. In 1996, graduating college students had about $13,000 in debt. Now, two-thirds of students borrow, and the average loan debt in 2009 for a four-year degree . At the same time, student-default rates are on the rise, reaching 8.8 percent this fall, according to the U.S. Department of Education.
鈥淚t鈥檚 becoming increasingly difficult for students to graduate with a nominal amount of loan debt,鈥� said Justin Draeger, the president and chief executive officer of the , in Washington. Since colleges are held accountable for default rates, financial-aid offices are spearheading financial-literacy initiatives on campus. At a minimum, students who take out federal loans receive entrance and exit counseling, but Mr. Draeger says efforts are most successful when they are schoolwide, repetitive, and interactive.
Even more effective is when financial education starts in high school.
In the past five years, some states have begun to make it mandatory, said Laura Levine, the executive director of the , in Washington. Virginia and three other states have a financial-literacy requirement for graduation. Another 19 states have some financial education woven into their required curricula.
While the recession has underscored the need for financial education, tight school budgets have kept programs from expanding, said Ms. Levine.
Ken Krause of Fitzgerald High School in Warren, Mich., teaches a personal-finance class using free resources from the , a Denver-based nonprofit. The unit on preparing for and financing college is often an eye-opener for his students.
鈥淢ost of them just think they are going to be given money for college,鈥� he said. 鈥淢any of them realize it will be costly, but they don鈥檛 realize how costly.鈥�
Since the students don鈥檛 have a good grasp of how long it takes to earn a certain amount of money, they build budgets for college and for work in various careers. The class learns about the potential salary boost that comes with a college degree. Mr. Krause doesn鈥檛 want to discourage his students from college, but he wants to prepare them for the long-term consequences of borrowing too much.
Serious Consequences
Student-loan debt has become higher than credit-card debt, said Gail Cunningham, the vice president of membership and public relations for the Washington-based , which has created financial education materials for high schools and colleges. According to the Federal Reserve, outstanding student-loan debt totaled $830 billion as of June 2010, while the seasonally adjusted revolving credit鈥攁ll but 2 percent being credit-card debt鈥攃ame to $826.5 billion.
鈥淧eople can graduate with a monstrous loan debt鈥攊n the six figures鈥攁nd in an environment where it鈥檚 difficult to get a job,鈥� she said. 鈥淪tudents need to be very careful and measured about debt.鈥�
They need to be especially serious because unlike credit-card debt, student-loan debt can鈥檛 be erased in bankruptcy. If you don鈥檛 repay your student loans, your wages can be garnished, income-tax refunds withheld, and Social Security docked, Ms. Cunningham said.
It鈥檚 tempting, too, for students to take out the maximum amount of credit available, but that鈥檚 not always smart in the long run, she said.
Students may want to use student-loan money for spring break in Cancun, but it鈥檚 better to use it for a laptop鈥攁nd a used one at that, said Ken O鈥機onnor, the director of student advocacy and financial literacy for , which helps students and parents find private student loans through not-for-profit credit unions. He spreads the word about sound money management through social media and training at schools.
鈥淚 help students recognize the difference from a want and a need,鈥� said Mr. O鈥機onnor. 鈥淭here are a lot of students out there that need a lot of help.鈥�
Since 2008, the Corning Credit Union in Corning, N.Y., has had an in-school branch at GTC BOCES High School in nearby Elmira. It is open a few hours a week and is staffed by a credit-union employee and student helpers.
鈥淲e hope the students are learning a sense of responsibility, knowing they need to save to plan for their future,鈥� said Kansass Smith, the youth-program coordinator with the credit union, who finds that students too casually and immediately think of borrowing for college, rather than pursuing grants and scholarships and saving money.
Before students even set foot on a college campus, they should consider whether it鈥檚 an affordable choice for them.
Pauline Abernathy, the vice president of the Institute for College Access and Success, in Washington, which runs the Project on Student Debt, said college is still one of the best investments but, as with any investment, it鈥檚 important to be realistic.
鈥淲here you go to college can affect the likelihood of borrowing and the chances of completing,鈥� she said. 鈥淲e point out that there are high-debt states and high-debt colleges.鈥� Families should not look at the sticker price, she said, but the net price鈥攈ow much in grants and other aid colleges are willing to offer to reduce the costs.
Ms. Cunningham encourages students to take advantage of courses in high school to get college credit, go to summer school, live at home to cut costs, and consider a community college.
鈥淣o one asks where you started school. They ask where you graduated from,鈥� she said. 鈥淧eople can really get the basics at more affordable schools and then move on if they choose to.鈥�
U.S. PIRG would like the Education Department to write a uniform federal student-aid-award letter that clearly spells out the net price of college the recipient will get so it鈥檚 easy to understand what the student is expected to pay, Mr. Williams said.
鈥淔or most students, the amount of debt is manageable,鈥� said Ms. Abernathy. But it鈥檚 important for students to seek out federal loans first, she said, over private loans, because they have better terms and safeguards. Too often, students take out more-expensive private loans without knowing they could have opted for a federal one, she said.
If students still have a need, after maxing out federal options, credit unions offer private loans, and some require monthly payments of at least $25 while student are still in school, Mr. O鈥機onnor said.
鈥淚t鈥檚 more like a symbolic gesture鈥攜ou can only knock off so much鈥攂ut it puts you in the zone,鈥� he said. And it gives students the chance to build credit, which is an increasingly important factor for employers.
鈥榃orry Later鈥�
Many first-generation college students haven鈥檛 received financial education at home and need help coping on campus, said Valerie Patnaude, the director of the Financial Aid Services Team at Rivier College in Nashua, N.H.
鈥淭hey take on three and four credit cards, buy pizza for the roommates, and take on loan debt they don鈥檛 really need,鈥� she said. 鈥淲e counsel them not to take on too much debt, but they say, 鈥業鈥檒l worry about that later.鈥� They are shocked six months after graduation when they have to repay those loans. It really hampers them.鈥�
Rivier College started with a few small money-management workshops, but now offers as many as three a month and draws student in with raffles for prizes.
鈥淚 think it鈥檚 part of the total education of the student,鈥� said Ms. Patnaude. 鈥淚t鈥檚 kind of beyond the traditional role of the financial-aid office, but I think we are almost duty bound to do it.鈥�
Jessica Harringon, a sophomore majoring in early-childhood education at Rivier, said she always wished for some 鈥渕agic鈥� answer to budgeting and has found some tips in the financial education programs on campus that will come in handy when she has to repay her loans.
鈥淚 knew when I applied that it was a really expensive college,鈥� said Ms. Harrington, who expects to have $100,000 in debt when she graduates and expects to earn $16,000 to $34,000 a year as a teacher. 鈥淚鈥檓 hoping the caliber of the education will allow me to get a job that will make it easier to pay off.鈥�
Looking ahead to graduate school, Ms. Harrington is hoping to get a position on campus that would cover her costs so she doesn鈥檛 have to borrow more.
