1. How Much Debt Is Too Much Debt?
Kevin Fudge, American Student Assistance
Kendra Lider-Johnson, MEFA
Julie Shields-Rutyna, MEFA
November 7, 2012

2. About MEFA
MEFA (Massachusetts Educational Financing Authority) is a not-for-profit state authority that works to make higher education more accessible and affordable through community education programs, college savings plans and low-cost financing options.
MEFA created the U.Fund® and the U.Plan® college savings plans, and has offered affordable fixed interest rate college loans for 30 years.
MEFA has assisted hundreds of thousands of families in financing a higher education.

3. About ASA Private nonprofit
Public purpose mission = empower students and alumni to successfully manage and repay their college loan debt
Provides student loan education
Develops financial competencies through innovative web-based tools and trusted, neutral advice
All free of charge to students and alumni.

4. Of the private, not-for-profit 4 year colleges with the highest tuition costs – 70 percent are in New England and the Mid-Atlantic area Of the private, not-for-profit 4 year colleges with the highest net prices – 55 percent are in New England and the Mid-Atlantic area Of the 13 states with the highest average student debt, half are the 6 states in New England
Sources: US Department of Education, Project on Student Debt, 2012

5. States with the highest average student debt
Source: Project on Student Debt, 2012

6. Within the United States, Massachusetts has the highest concentration per capita of colleges and universities that cost over $40,000 a year Students are often encouraged to go to their top choice regardless of the cost This is considered by guidance counselors and college admissions counselors as ‘an investment in their future’
Source: US Census, 2010

7. An Investment in Your Future
College Board’s ‘Education Pays’ report gives many reasons a college education is an investment in a student’s future
It shows college graduates have:
Better health
Stronger community ties
More security
Greater wealth
Closer Family

8. Expected Lifetime Earnings Relative to High School Graduates, by Education Level
The calculations in this figure are based on earnings of individuals working full-time year-round. Because the proportion of adults working full-time year-round increases with education level (for example, 67% of college graduates and 55% of high school graduates between the ages of 45 and 54 worked full-time in 2008), the lifetime earnings differentials would be larger if all adults — or all adult workers — were included in these calculations.
Higher earnings correspond to higher tax payments. If after-tax earnings were used in this calculation, the ratio of lifetime earnings for individuals with more than a high school diploma to lifetime earnings for high school graduates would decline slightly.
Sources: The College Board, Education Pays 2010, Figure 1.2; U.S. Census Bureau, 2009; calculations by the authors.

9. Estimated Cumulative Earnings Net of Loan Repayment for Tuition and Fees, by Education Level
Earnings Premium Relative to Price of Education
For the typical student who borrows to cover tuition and fees at a community college and earns an associate degree two years after high school graduation, total earnings net of loan repayment exceed the total earnings of high school graduates by age 33, after 13 years of work.
Many students take longer than two years to earn an associate degree or longer than four years to earn a bachelor’s degree. More time out of the labor force increases the amount of time required to compensate for lost earnings.
If the earnings of all adults at each level of education are considered — instead of only those working full-time year-round — the typical four-year college graduate makes up for time out of the labor force and for paying tuition by age 30.
In 2008, 43% of full-time students at four-year colleges and 53% of full-time students at two-year colleges were employed (NCES, 2010). Earnings during college reduce the amount of time required to compensate for lost earnings.
Sources: The College Board, Education Pays 2010, Figure 1.3; U.S. Census Bureau, 2009; The College Board, 2009; calculations by the authors.

10. Federal Student Loans Student is the sole borrower
No co-signer or credit check
No payments due while enrolled
Many repayment choices
Federal Direct Stafford Loan
Subsidized – Fixed interest rate of 3.4% begins after graduation
Unsubsidized – Fixed interest rate of 6.8% begins immediately
Federal Perkins Loan
Fixed 5% interest rate begins after graduation
Loan availability varies by college; not all colleges participate
MESSAGE: Federal loan options should ALWAYS be considered before private options
Go over loan details and limits:
Stafford: $5500 FR, $6500 SO, $7500 JR & SR
Perkins: $5500 max/yr.
Student will need to sign promissory notes for both loan programs and complete entrance counseling for Stafford Loans
Stafford – all U.S. citizens/permanent residents are eligible
Many repayment options are available for borrowers, including one that can be tailored to the student’s budget. Forgiveness provisions for certain professions. See for details
What is reasonable student loan debt? College seniors who graduated in 2010 carried an average of $25,250 in student loan debt, MA Avg.= $25,541. *Project on Student Debt. Avg debt for class of 2011: $27,200 (Finaid.org)

11. Federal Student Loan Repayment
Standard
Most cost effective
Graduated
Useful if you expect a sharp rise in income over time
Extended
Useful if you need a lower monthly payment
Income-Based Repayment
Lowest monthly payment
Consolidation

12. Case Study: Louis Family size = 4 2012 family income = $12,887
Accepted to first choice school: Private, Catholic liberal arts college
College Stats
88% Accepted
55% Graduate
2% Cohort Default Rate
Cost of Attendance
$39,650
Financial Aid Award
$34,150
Gap
$5,500
Yes means go to slide 13; No means go to slide 16
If you were this student’s financial aid counselor, would you encourage him or her to accept this generous financial aid award?

13. Financial Aid Package Details
Cost of Attendance
$39,650
Financial Aid Award
$34,150
Pell Grant
$5,550
FSEOG
$2,000
Mass Grant
$1,600
College Scholarship
$12,000
FWSP
Stafford Loan
$5,500
Perkins Loan
Gap
One way of looking at it:
Grants/Scholarships = $21,150
Self-Help = $13,000
Net Price = $5,500
Another way of looking at it:
Grants/Scholarships = $21,150
Net Price = $18,500

14. Look beyond the gap First Year Second Year Type Amount Stafford 5,500
Perkins
Stafford*
4,000
Total
15,000
Type
Amount
Stafford
6,500
Perkins
5,500
Stafford*
4,000
Total
16,000
Even if he manages to fill some of the gap, his federal loan debt may exceed $60,000 by graduation
Third Year
Fourth Year
Type
Amount
Stafford
7,500
Perkins
5,500
Stafford*
5,000
Total
18,000
Type
Amount
Stafford
7,500
Perkins
5,500
Stafford*
5,000
Total
18,000
*Parent(s) denied PLUS = additional unsubsidized Stafford Loan
Source: Kantrowitz, n.d.

15. What Are Results of His Choice?
Average
Louis
Average federal undergraduate debt $22K
Graduates with $60K in federal loan debt
38% of borrowers who graduated in 2005 were delinquent or in default by 2009
2-year cohort default rate of Louis’s institution is 1%
Median salary of bachelor’s degree recipients ages 25-34: $45K
Currently unemployed
Private loan debt?
Do you think Louis will successfully repays his loans?
Source: Baum & Ma, 2011; School data from College Navigator

16. Is this debt manageable?
Considerations
Total Cost of Investment
College retention and graduation rates
College graduate employment rates
College major
Career choice
Starting salary
Parent support
Living choices
Over a 10-year standard repayment period:
He will pay $690/month
$22,858 in interest
Total = $82,858

17. Strategies to minimize debt
Before College
Using Net Price Calculators to identify affordable schools
Prioritizing saving
Working a summer job (student)
Applying for scholarships
Appealing financial aid decision

18. Strategies to minimize debt
During College
Working while in school
Renting textbooks
Living at home and commuting
Using payment plan
Graduating in fewer semesters
Attending a less expensive college
Choosing a specific major for its career prospects

19. Strategies to minimize debt
After Graduation
Income-Based Repayment
Loan forgiveness benefit at work
Deferment
Forbearance
Considering income when choosing career
Lifestyle choices

20. This case reflect current trends
25% of borrowers in 2008 graduated from 4-year colleges with at least $30,526 in student loan debt
10% of borrowers graduated with at least $44,668 in student loan debt
1.5% of borrowers graduated with at least $100,000 in student loan debt
What will the percentages be in 2018?
Source: Project on Student Debt, 2010; Kantrowitz, n.d.; Kantrowitz, 2012

21. Changing the Trends
At your institution, who is in a role that can reduce education costs and student borrowing?
Financial Aid Administrators
Financial Aid Deans & Directors
Enrollment Management VPs
Finance & Administration VPs
Faculty
Trustees
President

22. The Buck Stops Here What would your recommendations be?
You have just been appointed as President of Massachusetts College. The Board of Trustees is very concerned about student borrowing and debt-burdened alumni. They have asked you to propose some strategies to cut the average student debt level from $40,000 to $20,000 within the next five years.
What would your recommendations be?

23. Contact Us Kevin Fudge Kendra Lider-Johnson Julie Shields-Rutyna
Kendra Lider-Johnson
Julie Shields-Rutyna