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.