Schools contend with growing student debt

With $864 billion in federal loans and $150 billion in private loans, student debt in America reached a milestone in May 2012, exceeding $1 trillion.

According to public nonprofit American Student Assistance, of the 20 million American college students, about 12 million, or 60 percent, borrow annually to help cover costs.

“Parents simply can’t afford to help out as much as they used to, so the majority load falls to the student,” said Valerie Sharp, director of student financial services at Evangel University.

Sharp said, on average, Evangel students graduate with about $30,000 in debt, slightly higher than the national average of $26,600 for public and private institutions, according to an October 2012 report from the Institute for College Access & Success. In Missouri, about 65 percent of the class of 2011 graduated with a debt load, averaging $23,229, the seventh-annual report said.

The U.S. Department of Education reports the federal student loan default rate is at its highest level in 14 years with more than 5 million student loan borrowers past due on at least one loan.

“When students graduate college, they are struggling to find jobs and therefore struggling to pay off their student loan debt,” Sharp said, of the current 7.7 percent unemployment rate.

To help students mitigate a mounting pile of debt after graduation, many universities have taken proactive steps. Sharp said Evangel requires all students to complete a personal finance class before graduation.

“We do our best to help students navigate their financial path because we don’t want them to graduate in debt,” she said. “The personal finance requirement helps students understand real-life budgeting, so, if they do have debt, they can work to pay it off upon graduation.”

Dubbed “Hard Work U” by The Wall Street Journal in 1973, Point Lookout-based College of the Ozarks’ commitment to eliminate student debt through its mandatory work-study program has recently taken the commitment one step further, no longer participating in private bank loans.

“We dropped federal loans 15 years ago, and to discourage debt even further, we believe private loans are no longer necessary,” said C of O President Jerry Davis. “If students want to work, they come to C of O. If they want to borrow money, they need to go somewhere else.”

Under C of O’s unconvential model, students do not pay tuition and instead, they work 15 hours a week on campus each semester to defray the cost of their education, which Davis estimates at $17,900 annually. Student jobs range from working in the fruitcake and jelly kitchen to milking cows at the campus dairy and serving meals in the college’s public restaurant.

Tuition at Evangel ranges from $215–$788 per credit hour, and Missouri State University recently approved a tuition increase for undergraduate students to $204 per credit hour from $200. The rate increase will go into effect July 1.

Davis said most private bank loans are used to pay students’ $5,900 room and board fee. Since C of O is no longer accepting payment of bank loans, the school will admit 60 additional students – a total of 550 – to its summer work program, which consists of 12, 40-hour work weeks at a campus job, to work off the upcoming year’s room and board.

“We don’t think loans of any kind are a good idea. Adding these additional spots gives more of our students an opportunity to work for that money, rather than borrow it,” he said of the school’s 1,376-student population. “If we need to, we will add even more slots to keep these kids out of debt.”

In addition, previously rented residence hall rooms will now be free for working students during the summer.

Davis said 90 percent of C of O students graduate debt-free, adding while he believes the rate is exceptional, 10 percent in debt is still too high.

“These students and institutions out there are so creative when it comes to everything else. Why not get creative to reduce our debt?” he said. “Debt has become a way of life in this country, but not at C of O. We are a work school, not a debt school.”