Last week I was an instructor at the week long Financial Aid Institute sponsored by the College Board. If you have not heard of it, this is an intensive training program for "newbie" financial aid administrators on all areas of the profession. The 70 or so attendees sit in either lectures or group discussions from 8:00 AM to 8:00 PM and try to understand the contents of a text book which is truly 6 inches thick.
Among other things, I lecture for a few hours on debt management from the perspective of ASAs Wellness philosophy (see blog entry 2.3.06.) What I heard from these new professionals was the age old frustration of "too much loan, not enough grant".
Financial aid officers believe in the philosophy of "self help", which means that since the student is the primary beneficiary of her education, she should help pay for it through working and borrowing. Borrow, yes; but not drown in debt.
We in the financial aid community are still suffering from the classic dilemma of not having enough funds (federal, state or institutional) to meet the eligibility of all our students. So to fill the "gap" students turn to borrowing. Fueling this is the ease with which students can borrow alternative loans beyond the limits of the federal loan programs. And fanning the fuel is the growing trend of parents to allow their students to borrow the portion they are unable or unwilling to contribute.
Students just dont know when too much borrowing is too much. Although this is not a simple thing to explain (see blog entry 6.28.06). I'll make it simple for you. Here is "Duane's rule of thumb" on how much to borrow. The amount of debt a student should accumulate during their 4 years of undergraduate education should not significantly exceed one year's cost of tuition and fees. So, if one year's tuition and fees amount to approximately $25,000, then that is the approximate target level of debt the student should have upon graduation. In this situation, if the student is estimating graduating with $40,000 of debt, then that is out of line, and the student needs to consider attending a different institution.
I know it is not that simple, but we need to establish some simple guidelines.
Tell me what you think.
Best, Duane
Posted by Duane Quinn on August 02, 2006 at 09:51 AM EST
I wish I had known all this, and taken my financial education to heart, before entering college.
I was naive of the proper channels, with little to no help from my educators to understand them, nor was I given any real encouragement to persue a better understanding. My bashfulness and reluctance to take a stronger stance on my education, poor choice of institution, lack of advisory support from the school or it's FinAid dept., and my financial situation at the time, placed me into a debt that - though less than most - is still tough to pay down; Especially so when I was never able to obtain my degree. So due to this unfortunate series of circumstances, I ended up owing the school money with few loans or federal aid applied for or utilized for relief (despite being a veteran). I have basically lost the education I desired and am permanantly locked out from persuing my schooling further until the debt is payed off; for this they hold my transcripts hostage.
Someday I hope to clear it all up and continue the education I so desire. With what I've learned since, and supported by organizations such as the ASA, I feel confident that I will get that opportunity once again. And perhaps we can all work towards avoiding such pitfalls for those currently persuing education, and for our children and their children's futures. Education is a valuable asset, and an investment in the future, so why keep it from those that desire it most?
Posted by Shawn on August 15, 2006 at 12:02 PM EST
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Michael T. Ryan is Vice President of Borrower Services for American Student Assistance, a position he has held since joining ASA in February, 2003. Mr. Ryan heads ASA’s Borrower Services Division, which is responsible for all aspects of the management and delivery of service to borrowers in ASA’s education loan portfolio, including all default prevention and recovery efforts.
In his 20-plus year career in higher education financing, Mr. Ryan has held key management positions at the Massachusetts Educational Financing Authority (MEFA), and Key Education Resources (formerly Knight Tuition Payment Plans). As MEFA’s Associate Director for Programs and Operations, Mr. Ryan facilitated MEFA’s entry as a Federal Family Education Loan Program (FFELP) provider. He also played an instrumental role in the introduction of the U. Fund, (MEFA’s Section 529 College Investing Plan), managed MEFA’s U. Plan (Prepaid Tuition Program), and was responsible for the operation of MEFA’s loan programs.
While at Knight and Key, Mr. Ryan held progressively responsible management positions, from Account Manager to Senior Vice President.
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