| August/September 2001 | Online Publication |
|
|
Students further complicate matters by developing unrealistic expectations of how much they'll be earning after graduation. |
Debt Management: What We Can Do to Help Students Understand Their Debt The "sticker shock" that many students experience can make graduation a mixed blessing. They've completed their education, but now they've got loans to pay back - and they've probably borrowed more than they think resulting in a higher monthly payment than expected. Students further complicate matters by developing unrealistic expectations of how much they'll be earning after graduation. Recent college graduates earn an average income of $27,000, but most of those surveyed for this study expected to make $39,000 annually. Are students in denial, or are we, as financial aid professionals, not doing enough to show them their future indebtedness and the realities of entry-level job salaries? As someone responsible for helping to educate students on managing their debt, I felt a bit helpless about how to address the findings in the PIRG study. I focused on developing materials that would discourage students from acquiring other forms of debt such as credit cards and pay-day loans while developing sensible money habits. My thought was that by developing good financial habits, students would be better prepared for dealing with their student loan balance. There are more tools than ever to help students realize the financial commitment they have made in taking out student loans. For example, Northwest Education Loan Association (NELA) partners with schools to send Loan Checkup letters to students up to four times per year. These letters show each student loan borrower their current level of debt. Additionally, when borrowers drop to less than half-time status or graduate, they receive letters detailing their total amount of debt. Many financial aid administrators are also very proactive about letting students know just how much they've borrowed. The Loan Checkup letter is a great tool for today's students, and it should help them gain a better idea of their amassed debt by the time they graduate. But is it enough? For most students, an education is the single greatest investment they have made so far. Overall, education is behind only home mortgages and mid-life crisis sports cars as the top investments many people make in a lifetime. I am a big fan of having loans available to those who wouldn't otherwise be able to afford an education. Like many people, I wouldn't have been able to attend college without taking out significant amounts in student loans, but I didn't really know what I was getting into financially. So far, I haven't bought a mid-life crisis sports car, but I've been in my own home for a year now. One of the things I'll never forget was the amortization table I was shown at closing on my home loan. Total loan - $125,000. Many lines and numbers later, it showed the total amount of money paid back with interest based on 30 years at 8.65 percent - $ 350,000! By reviewing that table, I was well aware of just what I had gotten myself into when I signed those papers (at least from a financial point of view). Students should be made aware of the financial commitment that lies before them at the beginning of their college experience. Providing an estimated amortization table to students based on their first year of financial aid is just one possibility for driving home their future indebtedness. After all, many will be dealing with their loans for 10 years or more after they've left campus. If student loan borrowers have an idea at the beginning of their schooling where they'll stand financially at graduation, they will be better prepared for the "real world" and will have a much more positive. |
|
|
  table of contents |
|