Teaching Students How to Borrow Responsibly

By State Treasurer Janet Cowell

One trillion dollars. Last year the total dollar value of outstanding student loans in the United States exceeded that once unimaginable total. That’s a staggering amount of debt. In fact, the U.S. education department reports that of the two-thirds of students who take out college loans, the average debt is $25,000. Even when graduates find a job in this tough economy, that’s a huge amount to repay just as a person begins a first – or new career.

Students take on this debt because, as a rule, it pays off in the long run. Good jobs require expert skills and a good education. What teachers and parents say about the value of an education is true. With a fouryear college education, the U.S. Census Bureau tells us, a person will earn twice as much money over a lifetime. An advanced degree helps earn even more.

For workers in North Carolina’s transition industries, a two-year degree from a community college is a lifeline – the difference between making ends meet or going under. But with constant tuition increases at two- and four-year college a fact of life, students have no choice but to take out loans. Yet a lot of students get failing grades for how they borrow money.

It’s not their fault. The truth is that some students take on too much debt because they don’t know any better. I want to help change that. As State Treasurer, I’ve made it part of my job to educate students about money, especially community college students. Along with the College Foundation, last year we launched a web application, “Advanced Money Management for Community College Students.” It’s an easy online program that teaches students about finance and helps determine affordable debt amounts with a couple of keystrokes.

I’ve traveled the state and discussed this with students. At Central Piedmont Community College in Charlotte, I talked with Ariel, who plans to transfer to a four-year college this year. She told me many of her friends have made questionable borrowing decisions.

“I have a friend that took out the $8,000 loan just because he could,” Ariel said. “Some people see it as $8,000 of free money – ‘Let me go get a new car.’” Ariel’s being smart and weighing how much debt she can afford. She believes an in-state university with lower tuition will help her avoid racking up debt she cannot pay back.

One Wake Tech student got right to the heart of the matter: “I am in the long-term debt boat.  Unfortunately, I had no guidance. So, whatever the system said I qualified for I took – the max.”

I wish the web application had been there for that student. To date, more than 18,000 students at 23 community colleges across the state have used the program and the tool – which calculates costs and potential earnings to analyze how much debt to take on – since it went live in August 2011. We know it can’t prevent loan abuse or even guarantee a decrease in the 14 percent three-year default rate on loans by the state’s community college students. As an integral component of a comprehensive default prevention initiative, the program will help simply by giving students more than a guess at the best amount to borrow.

I urge community college students and those who in mid-life need new work skills to use all financial resources available. A good place to start is the school’s financial aid advisor, who is available to answer questions and help assess individual needs. I also urge prospective students to:

• Visit CFNC, a unique service in North Carolina that provides a variety of resources on applying and paying for college, career research, and student loan repayment planning. Learn more at cfnc.org.
  
• Learn about income-based repayment plans and loan forgiveness programs at studentaid.ed.gov.
  
• Find tools and services to help with college planning, recruitment and admissions, financial aid and student retention at collegeboard.com.
  
• Visit fastweb.com to search for college scholarships.
  

I am confident that when the data comes in, after seeing students using these programs graduate and start paying back their loans, we’ll see lower default rates. That’s important to me because at the Department of State Treasurer, we are committed to helping citizens improve their financial literacy and make smart financial decisions. We’ve offered money management assistance to community college students by bringing in volunteers from the Financial Planning Association and Alliance Credit Counseling. We’ll be looking for other ways to help, too. With all this, we can ease the debt burden on students and help give each of them a better chance at long-term financial health.