Solving the Adaptive Challenge of Student Loans in the US

Unlike many other developed countries, American higher education is mainly financed by students and families. The latest statistics show that 44.7 million Americans have already borrowed a total of $1.56 trillion to help cover the cost of their study, which means college debt is a nationwide problem that affects a broad spectrum of citizens (Friedman). The student body, federal government, banks, and universities are all stakeholders of this challenge. The amount of student loans for college has been increasing ever since 2006 and is expected to continue its growth even though it is already at a historically high level. To help students complete their education, the federal government has created loan programs such as Perkins Loan and Stafford Loan that are widely available to almost every student and offer subsidized interest rates. However, most college students still have to pay everything back after they land at full-time jobs. For students who just graduated from college, they may find it challenging to plan their financial resources wisely and make timely repayments for their student loans. In fact, one out of seven borrowers fail to repay their loans annually (Nadworny). If the size of student loans keeps growing, the number of defaulters is likely to increase, which may bring systematic risk to the American economy as a whole.

From a student’s perspective, the massive amount of loans put us at a disadvantaged position and deferred our chances of enjoying the economic benefit that higher education can bring. To alleviate financial pressure, students often have to spare efforts on part-time jobs while studying, which is very likely to bring negative impacts on learning outcomes. According to a research from Georgetown University, over 70 percent of college students have worked while in college and the group of working students is becoming larger as tuition grows (Rapacon) . Nevertheless, the truth is that even if students choose to work full-time, the wages we earn could not fully cover the amount of debt due to the ballooning cost to attend college these days. Meanwhile, for some graduates, the insurmountable college debt has a long-lasting after effect that diminishes their lifetime plans such as marriage and retirement. The survey result from Student Debt Crisis, a non-profit advocating for student loan reform, reveals that 19% of respondents delay their marriage and 26% put off the plan of having a child due to their college debts (Hembree). It is evident that a large group of people would live a higher-quality life if they do not need to worry about the money they borrow for college. The student loans are currently holding back their level of consumption and they could have contributed more to America’s economic growth.

To solve the current student loan crisis, universities should take on their responsibilities and play the central role. At first, what they can do is to revise their budget structures comprehensively and find out the crux that drives the rapid tuition increase. The size of college debt an individual has to take positively correlates with the level of tuition. Therefore, universities must carry out effective cost control so that students do not have to take on more debt. According to How Much is Too Much? published by ACTA, colleges’ administration costs deserve special attention amid the growing tuition because they have been increasing faster than instructional spending. Meanwhile, the ratio of faculty and staff positions per administrator also declined from 3.5 in 1990 to 2.2 in 2012 (ACTA). The growth of administrative expenditure is partly resulted from the ongoing trend to build a 24/7 learning experience on college campuses. By hiring more staff in the student life office, universities have the resource to educate students even in residential halls and club activities. However, although extracurricular activities are an integral part of students’ college experience, university leaderships should still keep their focus on teaching and try to be economical on expenses that would not bring direct advancements for education qualities. Sometimes, it is not worth it to extend education beyond classrooms when students have to worry about paying for their courses in classrooms.

Reviewing and changing the spending patterns from administration-oriented to academic-oriented may be a time-consuming process for colleges, but the crisis of student loan urgently needs a solution. Under such a circumstance, universities can also consider the re-allocation of their student life resources. One option is to develop college debt counseling programs that help students to plan their finance wisely. Nowadays, many students do not have a clear idea about the amount of loan they borrowed and how the debts are going to affect their lives. Based on my personal experience, some graduates even don’t know the procedures to begin their repayments after getting a job. A research from Journal of Financial Education finds that only 62% of the business college students have debt literacy (Nonis). For students in other majors, the situation might be even worse. As a result, the debt counseling service offered by the university becomes critical because it is the most direct resource students can take advantage of if they have any questions about their debts.

Recently, my classmates and I did a survey within New York University, trying to figure out the students’ opinions on college debt counseling programs currently offered at NYU. We collected responses from 33 students and alumni from all three campuses (New York, Abu Dhabi, Shanghai) but our findings are a bit apprehensive. According to our survey results, only 36.4% of the students received financial counseling from NYU and the average satisfaction towards NYU’s financial advising service is 3.05/5. When answering the question “Do you feel that NYU offered sufficient counseling concerning repayment, financial planning, and general preparedness for post-graduation?”, none of the debt-takers gave a positive response. There are two respondents even mentioning that the federal government (FAFSA) provided better financial advising programs than NYU. However, we should be aware that compared with students attending public universities, the financial challenges some NYU students facing are more substantial because of the high tuition and the huge cost of living in downtown Manhattan. Quite a few students and alumni reported they had to borrow over $100,000 only for their undergraduate study. Relying on the advisory materials from the federal government is not enough to address every NYU students’ financial stress because the financial commitment of attending NYU is very different from an average university. This being the case, we can interpret the data to conclude that many students would benefit from the reform of the current debt counseling program at NYU and additional resources intended to better provide aid in the process of paying for college.

As for the origins of the problems with NYU’s debt counseling program, we identified that the current solutions provided by the university administration are mostly technical. No matter it is self-paced seminars or work-study programs, they could not settle everyone’s question considering various family backgrounds and economic standings they come from. Meanwhile, the current culture of creating a “safe” environment dismissed the possibility of publicly discussing economic differences between students. I believe that besides NYU, many other universities are facing the issue of ineffective student loan counseling as well. With the current trend that universities are willing to invest more in administration than instruction, student life staffs should notice students’ demand for financial advising and make more effort to equip them with necessary knowledge to deal with their debts. After all, the living qualities of young professionals who just got their degrees are directly related to the amount of debt they have to take, and no one would like to defer their marriage plans because of student loans.

*Special Thanks to my group members Claudia Ameijeiras, Adele Purdy, and Meredith Chaffin for conducting the survey and writing reports for reference*

Luke Yang is an intern at ACTA and a junior at New York University.