As soon as Ethan Davis was admitted to MSU, he set his sights on getting out. An economics freshman taking only core, required classes, Davis now is considered a sophomore credit-wise after loading up on Advanced Placement courses in high school. He’s determined to graduate in three years.
It’s not what he wants to do — it’s what he has to do.
From Federal Stafford Loans to private loans to Parent Plus loans, Davis said he has plenty of borrowing options to pay for school. It’s the precise reason he feels the pressure to leave East Lansing with a diploma and as little debt as possible.
“It’s an incentive for me to get out of MSU as quick as I can,” he said. “It’s a bad thing because, for me, it’s encouraging me to take only required classes and as many as I can, as soon as I can. And that’s bad for my quality of learning and my health and well-being.”
But Davis isn’t the only one feeling the heat.
According to a 2010 report by the Department of Education, MSU students cumulatively owe about $433 million in government loan debt. That amount, which does not include private loans taken out by students, makes MSU the institution with the eighth highest total student debt nationally among not-for-profit universities.
MSU also has the second highest median student debt rate in the Big Ten Conference at $22,078 per student. Spartan debt is only trumped by students at private Northwestern University, according to the report’s data.
All things aside, MSU students far exceed expectations in the area of loan defaults, according to student loan and financial aid experts. The national average for student loan defaults — or the inability to make continuous monthly payments on a loan — rose to 7 percent in 2010. MSU students have a 2010 average of 1.7 percent.
But to just glance over the statistics would be a mistake, said Rick Shipman, director of the Office of Financial Aid. Shipman said it’s important for students to be knowledgeable about borrowing and the on-campus resources available before choosing how to pay for school.
“Of course students should be afraid of borrowing that much money, but they shouldn’t be afraid of taking out the loans, getting the degree and a job and managing those payments (after graduation),” he said.
Breaking down the numbers
A simple math equation isn’t enough to define the state of student debt at a university, Shipman said.
“When studies look at the average debt of a graduating senior, they look at all of the seniors who borrowed loans and divide the total dollars borrowed by the total numbers of students who borrowed,” he said. “There are a small amount that take out private loans also, and you’ll find that it really skews the results and makes the average higher.”
Although having about $22,000 in debt upon graduation might seem outrageous, Melissa Hunt, vice president of client relations and education at Credit Union Student Choice, said the statistic isn’t surprising.
Credit Union Student Choice is an organization that works with credit unions across the nation to help provide financial support services to students.
“I don’t feel that that’s extremely high,” she said. “If you think about it, an average student is eligible for about $29,000 in federal loans already, so to be below that is definitely reasonable.”
Although MSU has one of the highest national student debt loads, James Monks, an associate professor of economics in the Robins School of Business at the University of Richmond in Virginia, said he’s not surprised MSU students have low default rates on their loans.
“Generally, the better the school, the better the default rate,” Monks said. “Students are able to go on and get good jobs and pay their loans.”
MSU students are some of the best in the Big Ten Conference for avoiding loan default, Shipman said. Similarly-sized schools such as Pennsylvania State University, Ohio State University and Indiana University have default rates of 3.4 percent, 2.5 percent and 2.5 percent, respectively, he said.
“Students who default the most are students who do not complete their degrees,” he said. “You don’t have a lot of students at MSU that don’t end up finishing a degree here or elsewhere.”
Mark Kantrowitz, publisher of fastweb.com and finaid.org, said there are few reasons MSU’s default rate could be lower.
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Fastweb.com and finaid.org are websites devoted to helping students navigate financial processes associated with higher education.
“(It’s) a better qualified college and therefore students are going to get better jobs after graduation,” Kantrowitz said. “Schools also can manipulate their default rates by encouraging students that are struggling financially to defer payment or go into forbearance so they aren’t included in the default statistics.”
Working the system
Students have numerous options when it comes to managing loan debt post-graduation, Kantrowitz said, but most experts promote taking out federal loans first in all cases.
“They have fixed, lower interest rates,” he said. “There is loan forgiveness on federal loans, but not private loans.”
As part of a student loan reform package added on to the Health Care and Education Reconciliation Act of 2010, income-based loan repayment and loan forgiveness now are helpful options available for students, Shipman said.
“Most college students start out making less money than they are going to make over time,” he said. “Knowing that their payments will always be reasonable based on their income level makes it less fearsome for them to borrow the needed amount. On top of that, if they are totally unemployed and have no income, they can file for forbearance and (the government) will let you wait to pay on your loans for up to 12 months at a time.”
Monks said the policy is an important one, but warned that students should be cautious.
“It doesn’t reduce the payment,” he said. “It just stretches out the payment over a longer amount of time.”
Jane Glickman, a spokeswoman for the U.S. Department of Education, said most importantly, the department wants students to avoid default.
“Our goal is to make sure students don’t go into default and have the opportunity to pursue teaching or whatever public service jobs they want after college that don’t generate as much income,” she said. “We don’t want student debt to dictate what they go into, so this is a good option for them.”
Hunt said it is vital that students in debt trouble communicate with their lenders.
“If you find yourself, as a student, in a situation where you might not be able to pay your loan payment, reach out to your lender,” she said. “They do not want you to default. They want to assist you in staying in payment on this loan. Many, many lenders will work with you.”
Tapping into university resources
As much as loans are financial strains, international relations and French junior Breanne Lewinski said they can provide students with important experiences, such as study abroad.
Traveling to Brussels this summer, Lewinski said many of her peers could not have made the trip without the help of federal loans.
“The experiences we got from visiting the different European Union institutions there were irreplaceable and the benefits those students got from the study abroad by taking out the loan were essential,” she said. “Some of the programs are too expensive for students to handle without loans.”
For those feeling the strains of financial stress, Olin Health Center can schedule student appointments with a financial awareness counselor who visits campus weekly, said Dennis Martell, health education coordinator for Olin Health Center.
“It’s available for students to help them reduce mental, physical and academic difficulties,” Martell said. “MSU students ranked money as the second highest rated thing that they’re stressing about in a survey we did last year.”
Davis said regardless of his options, the pressure is on. He said officials need to avoid making assumptions about the financial situations of students when doling out grants and financial aid.
“There are classes that I really want to take and if they’re not counting, I can’t take them,” he said. “I’m definitely missing out on part of the experience.”
Shipman said students should take advantage of entrance and exit counseling available at the Office of Financial Aid for loan debt.
“You have the opportunity to come and meet with someone in our office individually or in a group setting,” he said. “You can even do a web version that tells you about the terms and conditions that are available as a borrower to avoid default.”
Hunt worked with the Office of Financial Aid on many prior occasions and said students should take advantage of the resources the office has to offer.
“I would go to a school and they would do one great thing and another school would do another great thing,” she said. “But at MSU they do a lot of great things. I am blown away at how phenomenal the financial aid office is. They’re in a totally different class.”
