Student loan 'bubble' hasn't landed in Ozarks yet

While national media outlets have drawn comparisons between the housing bubble and a similar situation in the student loan arena, local schools aren’t largely aware of the growing issue.  

The so-called student loan bubble – which has caught the attention of publications such as the Wall Street Journal – focuses on large debts some students incur and whether the degrees they earn will enable them to repay what they borrowed.

Growing indebtedness
In 2010, U.S. student loan debt surpassed total consumer credit card debt for the first time in history, reaching $833 billion, and according to the Missouri Department of Higher Education, the national default rate on student loans was 7 percent in 2008, the latest data available from MDHE.  

According to The Project on Student Debt, a not-for-profit policy and research organization, average student loan debt levels in the U.S. more than doubled to $23,200 in 2008 from 1994, and more than 10 percent of undergraduates earning bachelor’s degrees leave college with more than $40,000 in student loan debt.

The Project on Student Debt, which also has data for 2009 graduates, found that Missouri ranked 29th in the nation of 49 states surveyed for the amount of student loan debt, with 2009 graduates averaging $21,360 in debt.

Missouri’s student loan default rate, however, was below the national average at 5.8 percent, which may be why local schools aren’t as familiar with the student loan bubble phenomenon.

“It was totally new to us,” said Jackie Lewis, assistant director of the loan unit at Missouri State University’s office of financial aid.

Lewis notes, however, that defaults – and the apparent lack of a bubble here – may be due to the fact that the Ozarks region is traditionally fiscally conservative.

“Our students and parents are pretty good at looking at their finances,” Lewis said. “They’re also good at researching scholarships as much as possible.” The passage last year of the Health Care and Reconciliation Act of 2010 put an end to student lending by commercial banks through the Federal Family Education Program, meaning that more students turn to school financial aid offices such as Lewis’ at MSU. Students now access funding through schools and the U.S. Department of Education’s direct lending program.

Lewis noted that while enrollment at MSU has increased – 19,707 for the spring semester – the number of student loan applications hasn’t risen, partly because the expected family contribution level was increased to $5,273, enabling more students to be eligible for funding such as Pell Grants, which don’t have to be repaid.

Jill Wiggins, director of career planning and development at Drury University, said another factor that may be keeping the student loan bubble from inflating in the Ozarks is that students at schools such as Drury are counseled and participate in career assessments before enrolling to examine their interests and values as well as what jobs may be available in their chosen field.

“We have them look at ‘What lifestyle do I see and what do I need to earn to have that lifestyle and meet my obligations?’” Wiggins said.

Fiscal responsibility
Lewis said schools such as MSU, which participate in federal loan programs, are mandated to educate students about borrowing and debt.

“We also do exit counseling to educate them about loan responsibility if they fall to half time or quit college,” said Lewis, noting that those students would have to start paying back their loans immediately.

Data from The Project on Student Debt shows that MSU students fall below the national student debt average – $19,813 for 2009 MSU graduates – but Lewis knows trouble can crop up.

“The main problem is that parents haven’t planned; and students and parents don’t read all of the information,” she said. “They see the dollar amounts they can get and don’t care, and that mindset is detrimental. They get money for school and buy other things with the money left over (and) don’t realize they’re going to be paying for those video games they bought with student loan money for years.”

For Meghann Elwood, 32, the choice to head back to the classroom and incur more student debt was a strategic decision she feels will pay off in the future.

Elwood, who earned a bachelor’s in education with an emphasis in music education about 10 years ago, is finishing up her master’s degree in music at MSU, with plans to graduate in May.  

A teacher at Bissett and Weaver elementary schools in Springfield, Elwood said she’d always wanted to earn an advanced degree, but her choice to do so now was financially motivated.

Elwood borrowed approximately $20,000 for graduate school – no more than needed to complete her degree. The loans will take about six years to pay back at $200 a month, but after graduation, she’ll receive a monthly $250 raise after earning the advanced degree.

“The loan payments and what I earn will be a wash for five or six years, but after that, it will be financially worth it,” she said, noting that the master’s degree also will help her stay competitive in a tight job market.

Explore the options
For most students at College of the Ozarks in Point Lookout, college debt isn’t an issue, as the school enables students to pay for their educations – and in some cases, on-campus housing – by working at the school. The college doesn’t participate in student loan programs, said spokeswoman Elizabeth Hughes, as the school has operated with an endowment since 1906.

In fact, the Project on Student Debt reports that only 7 percent of College of the Ozarks graduates finish school with debt, at an average of $6,029.

“Many of those students were students who got married and left campus,” Hughes said.

Hughes said 4,662 students applied to C of O in 2010, up from about 4,000 applications a year, and the school accepts only 500 students for the fall and spring semesters.

“I think it’s a reflection of the state of the economy,” Hughes said. “Many students are looking for ways to get an education without having to go into debt.”

MSU’s Lewis, who completed her education with a graduate degree from Armstrong Atlantic State University in Georgia in 2005 and is still paying off her student loans, said not creating an individual student loan bubble is a lot about responsibility.

“People have to do a little research and be careful about borrowing, look to see what they are borrowing and what they expect to earn,” she said.[[In-content Ad]]