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RUNNING HEAD: FINANCIAL MATCH
Are your students financially fit? Understanding the college financial match Maria E. Rebecchi The Scholarship Foundation of St. Louis
Author Note Maria E. Rebecchi, Program Director, The Scholarship Foundation of St. Louis. Correspondence concerning this sample paper should be addressed to Maria E. Rebecchi, The Scholarship Foundation of St. Louis, 8215 Clayton Rd., St. Louis, MO 63117 Email: [email protected]
FINANCIAL MATCH
Abstract In the last two decades, a number of college-access strategies have been developed in response to public policy, research on higher education and common school counselors’ practices. Currently, college-access providers concentrate on the mechanics of navigating the system, but less attention is paid to finances. Through a series of Scholarship Foundation’s case studies, we will demonstrate that current efforts fall short when it comes to students’ financial planning. We will discuss the importance and impact of providing this financial planning and the effects these messages are having on college persistence and completion. A compact version of The Scholarship Foundation’s 3-part workshops on financial aid and college affordability will be presented.
FINANCIAL MATCH Are your students financially fit? Understanding the college financial match The purpose of this paper is to demonstrate the crucial need to consider financial details in matching students with schools. There is no argument that academic and non-cognitive skills should be part of the selection process, but they shouldn’t be exclusive. Historical context The college-choice process has evolved over time in response to shifts in public policy regarding postsecondary access and equity, as well as to changes in marketing, recruitment, admissions and financial aid practices.1 Early studies by Halle (1928) demonstrate that society put great importance on the selection of a higher education institution. The pursuit of education was viewed as an essential element of an individual’s life path, although it was reserved for affluent sectors of the population and centered mainly on vague notions of prestige, personal values and familial affiliation. In these situations, other aspects such as type of institution, campus climate and financial aid generally did not enter the decision-making process. In ―The Choice of a College,‖ Comfort (1925) explains that although ample research was being conducted on the subject, it didn’t translate into adequate guidance, and many students and families continued to make poor choices.
1
Palmer et al (2004-09) in Fifty Years of College Choice: Social, Political and Institutional
Influences on the Decision Making Process.
FINANCIAL MATCH The end of World War II didn’t see much change in the way choices were made, but the passage of the GI Bill and the funding of the United Negro College Fund opened the door to other segments of the population, and college enrollment increased dramatically. Also during this period, community colleges opened to respond to the increased educational demand. However, one big obstacle for students selecting schools was the lack of consistency in admission standards. In an effort to expand and streamline college access, the College Board was born at the same time that the first financial aid offices emerged in the northeast region of the United States. Colleges and universities introduced recruiting practices later determined to be deficient in depth and scope because they failed to articulate a high school-to-college curriculum or to clearly communicate admission criteria. To partially address this issue, SAT testing became a new criterion for admissions that eventually would be used as a gatekeeper. ―By the mid-1950s, college entrance requirements had created a fairly uniform prescription for admissions, which included a high school diploma, a minimum number of high school classes in certain subjects, high school rank, recommendations, personal interviews, and aptitude and achievement test scores.‖ (Palmer, Hayek, Hossler, Jacob, Cummings, Kinzie. 2004-09). At this point, colleges were faced with the option of increasing enrollments or becoming more selective. College selection publications, guides and campus tours became widely available and encouraged students and their families to start planning during junior year. High school guidance counseling was ill-prepared for this shift, having focused more on vocational help than college-choice assistance. During the 60s and 70s, public institutions expanded and competed with private institutions for the traditional student market. The passage of student financial aid under the Title
FINANCIAL MATCH IV of Higher Education Act of 1965 increased access to education among low-income and firstgeneration students. Recruiting efforts became aggressive enough that in 1976 Congress added a provision to the Higher Education Act requiring institutions to adhere to standards of accuracy and detail in the consumer information they distributed. Although this made more useful information available, students generally waited until their senior year to make decisions. With women, low income and minority students flocking to college, the list of selection criteria most often employed by students expanded to include cost. As a matter of fact, The Scholarship Foundation is the result of educational cost issues since 1920. The 80s decade saw a decrease in federal grants but an increasing emphasis on loan funding, based on an assumption that higher education is a personal matter, rather than a benefit to the work force and society at large. In response, schools introduced packages of need-based and merit-based aid to attract talented students. They also recognized the opportunity to generate new revenue from international students, non-traditional students, minority students and disadvantaged students and recruited them aggressively. With all of these changes, the process of selecting a school became more complex, time consuming and expensive for students and their families. In the 1990s, a decrease in high school graduation rates, an increase in college costs, and the inability of financial aid to keep pace, created barriers to access. Palmer et al. (2004-09) showed that ―the combination of rising college prices and the increased need to rely on loans instead of grants significantly constrained the choice process for many low-income students.‖
FINANCIAL MATCH This resulted in the birth of college access programs to assist students in making good college decisions earlier. Current trends – College Match and Fit For many students today, choosing a college still relies on such factors as perceived status, online user reviews, subjective magazine rankings and reports and academic prestige. Fifty years ago, a degree from a prestigious institution all but guaranteed economic and social opportunities. That’s not the case anymore. A recent study published by the National Bureau of Economic Research found that attending elite schools didn't necessarily pay off in higher postgraduation income. The challenge today is more complex. Students seeking a higher education vary widely in their academic goals, needs and preparedness. Identifying institutions that match those criteria takes more time, effort and expertise. A student who finds herself at a school that doesn’t challenge her intellectually will be just as poorly served as someone who attends an institution whose academic standards exceeds hers. With college completion rates decreasing nationally (Bound and Turner 2009), studies such as ―Beyond High School: Building Better Futures,‖ commissioned by the St. Louis Regional College Access Pipeline Project, set out to identify barriers contributing to this decline. Some of the findings attribute this phenomenon to changes in the preparedness of entering students, difficulty in navigating the complex process of college and financial aid application, increasing costs of education, and lack of resources to support students during their academic journey. To address some of these challenges, the concept of college match emerged to provide a partial framework for better determining what students want and need from a successful college experience, but it could still be strengthen.
FINANCIAL MATCH Beyond academic matching, college access providers have learned that finding the right college means more than gaining acceptance to the most competitive college possible. Nagoaka, Roderick, and Coca (2009) clearly define that ―it is about finding a place that is a good fit — a college that meets a student’s educational and social needs and that will best support his or her intellectual and social development.‖ College life presents many challenges for incoming students. Students are not only concerned about their academic success, but also their social and emotional adjustment. This aspect of college selection is especially important for populations such as first-generation and minority students. Finding the necessary support services and systems on campus can be the difference between success and failure. The availability of these resources is a clear sign that a school understands what successful transition to college entails, the wide array of students it serves, and the unique value of exposure to many cultures and traditions. However, it is ultimately up to the school and the student to make a good faith effort to reach out to each other. In summary, school selection has involved evaluating a student’s academic and psychosocial compatibility with that of an institution. Their degree of relative importance will vary by student and family circumstances. This process, however, is not a one-size-fits-all exercise. High school counselors, college coaches, college-access providers, parents and students devote considerable time and resources to finding the best school possible. The most common considerations involve the type of college and size, location, variety of academic majors, campus life, admissions criteria, persistence and graduation rates.
FINANCIAL MATCH Even when students make a reasonable investigation of options, chooses schools based on the elements described and are admitted to one of the schools they are choosing, the ending is not always the happy ending that most counselors and college access providers seek for the students they assist. However, at The Scholarship Foundation, we have seen students who have been conscientious in their selection of schools on these criteria but who nevertheless fail to persist and complete their college careers. In our experience, this is what can happen when you account only for academics and school environment. Case Study: Rachel Let’s consider Rachel. Rachel was a student who did not have anyone to intervene on her behalf or educate her on financial resources and debt management. After receiving significant institutional scholarships, she completed a bachelor’s degree at Washington University in Women’s Studies. She then moved to New York City to attend law school at Columbia University where she received a scholarship to cover 50% of her tuition. However, upon graduation, Rachel returned to St. Louis with more than $200,000 in educational debt—in federal, private, and Scholarship Foundation loans. Inevitably, she moved back in with her parents to save money. She could not find a high paying job and could not afford to take the bar exam in Missouri. Rachel began defaulting on her educational loans. One of many consequences of defaulting is that Rachel is not eligible to take the bar exam because of ―financial irresponsibility‖ as defined by the Missouri Bar Association. Four years later, at age 27, Rachel is living with roommates and making $9/hour. The Scholarship Foundation helped her consolidate her federal loans, and she is making minimum payments that have been adjusted to
FINANCIAL MATCH fit her income. She faces a long road to dig herself out of educational debt and will struggle to practice law—the very goal that left her so deeply in debt. College cost and affordability For decades, college tuition has risen faster than Americans’ ability to pay it, well beyond the general rate of inflation. These circumstances make the role of financial aid ever more important. Yet, college-match literature gives minimal (if any) consideration to college cost and affordability. And although many sources mention student’s concern about pricing, there’s no elaboration on the subject and no discussion of practices to address the concern. The Middle Class Task Force’s report ―Financing the Dream‖ states that the proportion of college freshmen citing financial factors as very important in their college choice has increased sharply. However, lack of understanding and lack of adequate education about financial issues remain major barriers. This lack of information translates into low rates of financial aid applications; in fact, according to the American Council on Education ―approximately one in five low-income students who are enrolled in college and would be eligible for Pell grants never filed a FAFSA.‖ Nonetheless, concerns about college cost are by no means limited to low-income families. It is a major concern for middle-class students as well. Incomes for both groups ―have failed to keep pace even with inflation, much less college tuitions.‖ (Barriers to Higher education, Middle Class Task Force, 2009). As the chart below shows, since 1979 the median income for a family of three increased just 10% according to the US Census Bureau data. During that same period, college tuition increased at about ten times as fast as median incomes for those same families.
FINANCIAL MATCH
*Source: Middle Class Task Force, Financing the Dream, 2009.
The main reasons for rising college costs are increased spending (to expand amenities and services offered to students, for example) and the need to replace losses such as state appropriations, which have not kept pace with enrollment growth according to the Middle Class Task Force report on college affordability. Although Pell grants have increased in recent years, 30 years ago a maximum Pell grant covered roughly 77% of the cost of attending a public 4-year institution (and nearly the entire cost of a 2 year-public school). Today, the maximum grant covers only 35% and 68% respectively.
FINANCIAL MATCH To address this issue of cost and affordability, The Scholarship Foundation of St. Louis developed a new discipline of limiting the amount of debt it will allow its students to incur. By implementing these new guidelines, The Scholarship Foundation took upon itself the responsibility to at least conditionally denied applications it considers will leave the student with a level of debt that is too high. Therefore, it is no longer just a question of the student making a choice, but ensuring the student keeps his debt burden to a minimum. Debt Burden According to the Department of Education, 60% of students borrow money to attend college. But as borrowing has proliferated, knowledge about the process and its consequences has not. The fact that students take out loans based on what they need at the moment, rather than based on what they can afford in the future, is a clear sign that awareness is lacking. One common measurement is ―the 8% rule‖ (which states that students should not allocate more than 8% of their gross income to repayment of debt – see Greiner for details). Estimates show that the average starting salary for a college student is $35,000. The chart below looks at the average loan debt by type of school and subsequently the expected monthly repayment amount based on the 8% rule. Based on Mapping your Future’s online repayment calculator, this chart also shows just how much income a student should earn in order to afford their loan monthly payments.
FINANCIAL MATCH Percentage of Graduates with Student Loans and Average Debt2 Sector Average Loan Monthly Needed Yearly Percentage of Debt Payment (8% of Salary students with this income) debt $20,200 $232 $35,000 62% Public 4-year $27,650 $320 $48,000 72% Private, nonprofit 4-year $33,050 $380 $57,000 96% Private, for profit 4-year As challenging as this scenario is, there is another problem: The 8-percent rule refers not just to education debt but to all debt. So when a student starts adding car loans, credit card balances and even private loan obligations, monthly payments become unmanageable at the salary levels used in the chart. The Scholarship Foundation is starting to see an increase in requests to either defer or reduce current monthly payments. A quick calculation among a small SF sample suggests students’ average monthly payment allocation is closer to 12% of their gross income. Beyond the Obama Administration’s proposed regulations, there is no agreed-upon limit for what constitutes an acceptable level of student debt. (Baum and Schwartz, 2006). The Scholarship Foundation has calculated that borrowing the full portion of the federal subsidized Stafford loans (totaling $19,000 for 4 years) plus the full amount in SF interest-free loans (totaling $28,000 for 4 years) can allow its students to successfully achieve their academic goals and graduate with a reasonable and manageable level of debt. These two loans were also chosen because the nature of these loans is good debt and offer reasonable terms.
2
Calculations by the Project on Student Debt using data from NPSAS:08
FINANCIAL MATCH A case for financial match These kinds of financial realities present students with three options: 1. delaying academic pursuits indefinitely; 2. accepting the costs and becoming heavily indebted; or 3. making financially feasible college choices from the beginning, an option that gave birth to The Scholarship Foundation’s award letters workshop. Across the board, award letters fail to clearly answer basic questions about aid and cost. There are no standards for what colleges should include on a letter or how it should be displayed. This makes it extremely difficult to make sensible comparisons from one institution to another. The risk, of course, is that bad information can lead to poor decision-making. But help is on its way. The Department of Education has recognized this challenge. As of fall 2011, schools will have to comply with new regulations set by the U.S. Department of Education to ensure transparency of data (cost and aid awarded) as well as uniformity in the display of information. To address the crucial importance of financial matching, The Scholarship Foundation has developed a 3-part series of workshops that educates students on available financial resources, applying for financial aid and assembling the critical pieces of an affordable education. A workshop on financial aid award letters is part of the series. The curriculum of The Scholarship Foundation’s award letters workshop educates students and families on the pluses and minuses of different types of aid. It explains the formula used by financial aid offices and their criteria for making financial awards. Once students understand these basics, the workshop concentrates on the importance of comparing and assessing which schools ultimately are the most financially feasible, not based exclusively on
FINANCIAL MATCH tuition cost but on the best combination of total education costs and financial aid offers. For students without 100% funding, the workshop teaches self-advocacy strategies (i.e. what questions to ask, how to appeal adverse decisions). Also, the workshop shows students how to negotiate if the school they prefer hasn’t made the best offer. Finally, the workshop provides students with a list of resources to explore for possible private funding assistance. The Scholarship Foundation’s experience has shown that demystifying confusing terminology and teaching students how to accurately compare loan terms can be very empowering for them. A Picture of Success The Scholarship Foundation has come to know many students who have done thorough investigations of school and financial options to avoid winding up in situations like Rachel’s. One of these students is Anthony, who walked into The Scholarship Foundation in November 2009 with an application he intended to submit for funding to attend an expensive art program at a proprietary school in Florida. He was referred to our Program Advisor to discuss school choice. After months of research into nonprofit schools and many hard hours completing an application for a prestigious art school in Florida, Anthony had been was accepted to a dream school for computer animation. However, cost still remained an issue. Scholarship Foundation staff spoke with him and helped him understand the troubling math: He would have to borrow approximately $40,000 per year for the school of his choice, accumulating a crushing debt load by the time he graduated. Many more conversations followed to discuss scholarship options, loan options, debt burden, and alternative plans. Ultimately, a referral was made to an art teacher at
FINANCIAL MATCH St. Louis Community College, who recognized Anthony’s potential and encouraged him to consider Florissant Valley. After more thought, additional conversations with Scholarship Foundation staff, and reviewing program options, Anthony decided to enroll in the art program at St. Louis Community College at Meramec. He has honed his art skills, learned about computer animation, and kept his debt to an absolute minimum. To complete his work for a Bachelor’s degree, Anthony is now considering transferring to Webster University, an affordable 4-year school in the St. Louis area. Nathan came into Scholarship Foundation to submit an application for an interest-free loan. The staff answered his multiple questions. But when it came time to make a decision based on the financial aid award letters he had received from schools, he realized he needed more assistance. Fortunately, he came back to The Scholarship Foundation to get help. Nathan brought in six award letters, which he Program Advisor reviewed with him. At the time, he had focused on the University of Minnesota because the price tag seemed the most affordable of the six options. However, after looking at the math and comparing award letters for Minnesota, Syracuse, Purdue, and others, Nathan saw that a $27,000 scholarship from Syracuse would allow him to borrow less there than at Minnesota, even though Minnesota appeared to be more than $20,000 ―cheaper.‖ Nathan is enjoying his freshmen year at Syracuse and plans to graduate with approximately $30,000 in student loans. Had he attended Minnesota, his indebtedness at graduation would have been more than $100,000. The Scholarship Foundation now uses the worksheet developed for Nathan’s school cost comparison in its award letter workshops as an example.
FINANCIAL MATCH Conclusion This paper considers public policy, higher education research, institutional perspectives and student realities. It argues strongly that the college-choice process needs to expand to include financial issues. More recent public policy changes regarding college affordability have focused on the improvement of federal loan programs and repayment options to make college affordable: However, college is not affordable, the debt burden is staggering, and there is little reason to expect increases in state and federal funding for public colleges. More and more institutions will increase tuition and more aggressively recruit students to offset budget shortfalls. These trends are likely to continue, making accessibility more difficult for college-bound students. College access providers have both the opportunity and responsibility to educate students regarding a wide range of financial considerations. Attaining a college degree will not improve a students’ life if she graduates with unmanageable amounts of debt, defaults on her loans, ruins her credit and damages her employability. It is the hope of this paper to move the college access community toward making affordability as crucial an element of college choice as academics and psychosocial environment.
FINANCIAL MATCH Appendix
FINANCIAL MATCH References American Council on Education. (2004). Missed Opportunities: Students Who Do Not Apply for Financial Aid. Retrieved from http://www.princeton.edu/futureofchildren/publications/docs/19_01_09.pdf Baum, S., Schwartz, S. (2006). How much is too much? Defining benchmarks for manageable student debt. The College Board. Retrieved from http://projectonstudentdebt.org/files/pub/Debt_is_Too_Much_November_10.pdf Barriers to Higher Education. (2009). Middle Class Task Force. The Vice President of the United States Report. Retrieved from http://www.whitehouse.gov/assets/documents/MCTF_staff_report_barriers_to_college_F INAL.pdf Bound, J., Lovenheim, M., Turner, S. (2009). Why Have College Completion Rates Declined? An Analysis of Changing Student Preparation and Collegiate Resources. National Bureau of Economic Research Working Paper No. 15566. Retrieved from http://www.nber.org/reporter/2010number4/bound.html Comfort, W.W. (1925). The choice of a college. New York: The MacMillan Company. Danziger, S., Rouse, C. E. (2007). The Price of Independence: The Economics of Early Adulthood. New York: Russell Sage Foundation. Jones, T., Palazzolo, C. (2009). Beyond High School: Building Better Futures. St. Louis Regional College Access Pipeline Project. Retrieved from http://www.deaconess.org/UploadFiles/documents/Building%20Better%20Futures.pdf Dowd, A. (2006). A Research Agenda for the Study of Effects of Borrowing and the Prospects of Indebtedness on Students’ College-Going Choices. A working paper by the New England Resource Center for Higher Education for The Project on Student Debt. Retrieved from http://www.views.ticas.org/files/pub/Research_Agenda_NERCHE_TICAS.pdf Dynarski, S. M., Scott-Clayton, J. (2006). The Cost of Complexity in Federal Student Aid: Lessons from Optimal Tax Theory and Behavioral Economics. Retrieved from: http://www.ed.gov/about/bdscomm/list/hiedfuture/reports/dynarski-scott-calyton.pdf Financing the Dream: Securing College Affordability for the Middle Class. (2009). Middle Class
FINANCIAL MATCH Task Force. The Vice President of the United States Report. Retrieved from http://www.whitehouse.gov/assets/documents/staff_report_college_affordability1.pdf Greiner, K. (1996). How Much Student Loan Debt is Too Much? Journal of Student Financial Aid, 26(1), pp. 7-19. Halle, R.S. (1928). Which college? New York: The MacMillan Company. Nagoaka, J., Roderick, M., Coca, V. (2009). Barriers to college attainment: lessons from Chicago. Center for American Progress, 17. Retrieved from http://www.americanprogress.org/issues/2009/01/chicago_schools.html Palmer, M., Hayek, J., Hossler, D., Jacob, S., Cummings, H., Kinzie, J. (2004-09). Fifty Years of College Choice: Social, Political and Institutional Influences on the Decision Making Process. Lumina Foundation for Education. Retrieved from http://www.luminafoundation.org/publications/Hossler.pdf Steele, P., Baum, S. (2009). How Much Are College Students Borrowing? College Board. Retrieved from http://www.professionals.collegeboard.com/profdownload/cb-policybrief-college-stu-borrowing-aug-2009.pdf Taylor, P. (2010). The Rise of College Student Borrowing. Pew Research Center. Retrieved from http://pewsocialtrends.org US Census Bureau data. Retrieved from http://www.census.gov/hhes/www/income/histinc/ f10AR.html.
Are your students financially fit? Understanding the college financial match Maria E. Rebecchi The Scholarship Foundation of St. Louis
Author Note Maria E. Rebecchi, Program Director, The Scholarship Foundation of St. Louis. Correspondence concerning this sample paper should be addressed to Maria E. Rebecchi, The Scholarship Foundation of St. Louis, 8215 Clayton Rd., St. Louis, MO 63117 Email: [email protected]
FINANCIAL MATCH
Abstract In the last two decades, a number of college-access strategies have been developed in response to public policy, research on higher education and common school counselors’ practices. Currently, college-access providers concentrate on the mechanics of navigating the system, but less attention is paid to finances. Through a series of Scholarship Foundation’s case studies, we will demonstrate that current efforts fall short when it comes to students’ financial planning. We will discuss the importance and impact of providing this financial planning and the effects these messages are having on college persistence and completion. A compact version of The Scholarship Foundation’s 3-part workshops on financial aid and college affordability will be presented.
FINANCIAL MATCH Are your students financially fit? Understanding the college financial match The purpose of this paper is to demonstrate the crucial need to consider financial details in matching students with schools. There is no argument that academic and non-cognitive skills should be part of the selection process, but they shouldn’t be exclusive. Historical context The college-choice process has evolved over time in response to shifts in public policy regarding postsecondary access and equity, as well as to changes in marketing, recruitment, admissions and financial aid practices.1 Early studies by Halle (1928) demonstrate that society put great importance on the selection of a higher education institution. The pursuit of education was viewed as an essential element of an individual’s life path, although it was reserved for affluent sectors of the population and centered mainly on vague notions of prestige, personal values and familial affiliation. In these situations, other aspects such as type of institution, campus climate and financial aid generally did not enter the decision-making process. In ―The Choice of a College,‖ Comfort (1925) explains that although ample research was being conducted on the subject, it didn’t translate into adequate guidance, and many students and families continued to make poor choices.
1
Palmer et al (2004-09) in Fifty Years of College Choice: Social, Political and Institutional
Influences on the Decision Making Process.
FINANCIAL MATCH The end of World War II didn’t see much change in the way choices were made, but the passage of the GI Bill and the funding of the United Negro College Fund opened the door to other segments of the population, and college enrollment increased dramatically. Also during this period, community colleges opened to respond to the increased educational demand. However, one big obstacle for students selecting schools was the lack of consistency in admission standards. In an effort to expand and streamline college access, the College Board was born at the same time that the first financial aid offices emerged in the northeast region of the United States. Colleges and universities introduced recruiting practices later determined to be deficient in depth and scope because they failed to articulate a high school-to-college curriculum or to clearly communicate admission criteria. To partially address this issue, SAT testing became a new criterion for admissions that eventually would be used as a gatekeeper. ―By the mid-1950s, college entrance requirements had created a fairly uniform prescription for admissions, which included a high school diploma, a minimum number of high school classes in certain subjects, high school rank, recommendations, personal interviews, and aptitude and achievement test scores.‖ (Palmer, Hayek, Hossler, Jacob, Cummings, Kinzie. 2004-09). At this point, colleges were faced with the option of increasing enrollments or becoming more selective. College selection publications, guides and campus tours became widely available and encouraged students and their families to start planning during junior year. High school guidance counseling was ill-prepared for this shift, having focused more on vocational help than college-choice assistance. During the 60s and 70s, public institutions expanded and competed with private institutions for the traditional student market. The passage of student financial aid under the Title
FINANCIAL MATCH IV of Higher Education Act of 1965 increased access to education among low-income and firstgeneration students. Recruiting efforts became aggressive enough that in 1976 Congress added a provision to the Higher Education Act requiring institutions to adhere to standards of accuracy and detail in the consumer information they distributed. Although this made more useful information available, students generally waited until their senior year to make decisions. With women, low income and minority students flocking to college, the list of selection criteria most often employed by students expanded to include cost. As a matter of fact, The Scholarship Foundation is the result of educational cost issues since 1920. The 80s decade saw a decrease in federal grants but an increasing emphasis on loan funding, based on an assumption that higher education is a personal matter, rather than a benefit to the work force and society at large. In response, schools introduced packages of need-based and merit-based aid to attract talented students. They also recognized the opportunity to generate new revenue from international students, non-traditional students, minority students and disadvantaged students and recruited them aggressively. With all of these changes, the process of selecting a school became more complex, time consuming and expensive for students and their families. In the 1990s, a decrease in high school graduation rates, an increase in college costs, and the inability of financial aid to keep pace, created barriers to access. Palmer et al. (2004-09) showed that ―the combination of rising college prices and the increased need to rely on loans instead of grants significantly constrained the choice process for many low-income students.‖
FINANCIAL MATCH This resulted in the birth of college access programs to assist students in making good college decisions earlier. Current trends – College Match and Fit For many students today, choosing a college still relies on such factors as perceived status, online user reviews, subjective magazine rankings and reports and academic prestige. Fifty years ago, a degree from a prestigious institution all but guaranteed economic and social opportunities. That’s not the case anymore. A recent study published by the National Bureau of Economic Research found that attending elite schools didn't necessarily pay off in higher postgraduation income. The challenge today is more complex. Students seeking a higher education vary widely in their academic goals, needs and preparedness. Identifying institutions that match those criteria takes more time, effort and expertise. A student who finds herself at a school that doesn’t challenge her intellectually will be just as poorly served as someone who attends an institution whose academic standards exceeds hers. With college completion rates decreasing nationally (Bound and Turner 2009), studies such as ―Beyond High School: Building Better Futures,‖ commissioned by the St. Louis Regional College Access Pipeline Project, set out to identify barriers contributing to this decline. Some of the findings attribute this phenomenon to changes in the preparedness of entering students, difficulty in navigating the complex process of college and financial aid application, increasing costs of education, and lack of resources to support students during their academic journey. To address some of these challenges, the concept of college match emerged to provide a partial framework for better determining what students want and need from a successful college experience, but it could still be strengthen.
FINANCIAL MATCH Beyond academic matching, college access providers have learned that finding the right college means more than gaining acceptance to the most competitive college possible. Nagoaka, Roderick, and Coca (2009) clearly define that ―it is about finding a place that is a good fit — a college that meets a student’s educational and social needs and that will best support his or her intellectual and social development.‖ College life presents many challenges for incoming students. Students are not only concerned about their academic success, but also their social and emotional adjustment. This aspect of college selection is especially important for populations such as first-generation and minority students. Finding the necessary support services and systems on campus can be the difference between success and failure. The availability of these resources is a clear sign that a school understands what successful transition to college entails, the wide array of students it serves, and the unique value of exposure to many cultures and traditions. However, it is ultimately up to the school and the student to make a good faith effort to reach out to each other. In summary, school selection has involved evaluating a student’s academic and psychosocial compatibility with that of an institution. Their degree of relative importance will vary by student and family circumstances. This process, however, is not a one-size-fits-all exercise. High school counselors, college coaches, college-access providers, parents and students devote considerable time and resources to finding the best school possible. The most common considerations involve the type of college and size, location, variety of academic majors, campus life, admissions criteria, persistence and graduation rates.
FINANCIAL MATCH Even when students make a reasonable investigation of options, chooses schools based on the elements described and are admitted to one of the schools they are choosing, the ending is not always the happy ending that most counselors and college access providers seek for the students they assist. However, at The Scholarship Foundation, we have seen students who have been conscientious in their selection of schools on these criteria but who nevertheless fail to persist and complete their college careers. In our experience, this is what can happen when you account only for academics and school environment. Case Study: Rachel Let’s consider Rachel. Rachel was a student who did not have anyone to intervene on her behalf or educate her on financial resources and debt management. After receiving significant institutional scholarships, she completed a bachelor’s degree at Washington University in Women’s Studies. She then moved to New York City to attend law school at Columbia University where she received a scholarship to cover 50% of her tuition. However, upon graduation, Rachel returned to St. Louis with more than $200,000 in educational debt—in federal, private, and Scholarship Foundation loans. Inevitably, she moved back in with her parents to save money. She could not find a high paying job and could not afford to take the bar exam in Missouri. Rachel began defaulting on her educational loans. One of many consequences of defaulting is that Rachel is not eligible to take the bar exam because of ―financial irresponsibility‖ as defined by the Missouri Bar Association. Four years later, at age 27, Rachel is living with roommates and making $9/hour. The Scholarship Foundation helped her consolidate her federal loans, and she is making minimum payments that have been adjusted to
FINANCIAL MATCH fit her income. She faces a long road to dig herself out of educational debt and will struggle to practice law—the very goal that left her so deeply in debt. College cost and affordability For decades, college tuition has risen faster than Americans’ ability to pay it, well beyond the general rate of inflation. These circumstances make the role of financial aid ever more important. Yet, college-match literature gives minimal (if any) consideration to college cost and affordability. And although many sources mention student’s concern about pricing, there’s no elaboration on the subject and no discussion of practices to address the concern. The Middle Class Task Force’s report ―Financing the Dream‖ states that the proportion of college freshmen citing financial factors as very important in their college choice has increased sharply. However, lack of understanding and lack of adequate education about financial issues remain major barriers. This lack of information translates into low rates of financial aid applications; in fact, according to the American Council on Education ―approximately one in five low-income students who are enrolled in college and would be eligible for Pell grants never filed a FAFSA.‖ Nonetheless, concerns about college cost are by no means limited to low-income families. It is a major concern for middle-class students as well. Incomes for both groups ―have failed to keep pace even with inflation, much less college tuitions.‖ (Barriers to Higher education, Middle Class Task Force, 2009). As the chart below shows, since 1979 the median income for a family of three increased just 10% according to the US Census Bureau data. During that same period, college tuition increased at about ten times as fast as median incomes for those same families.
FINANCIAL MATCH
*Source: Middle Class Task Force, Financing the Dream, 2009.
The main reasons for rising college costs are increased spending (to expand amenities and services offered to students, for example) and the need to replace losses such as state appropriations, which have not kept pace with enrollment growth according to the Middle Class Task Force report on college affordability. Although Pell grants have increased in recent years, 30 years ago a maximum Pell grant covered roughly 77% of the cost of attending a public 4-year institution (and nearly the entire cost of a 2 year-public school). Today, the maximum grant covers only 35% and 68% respectively.
FINANCIAL MATCH To address this issue of cost and affordability, The Scholarship Foundation of St. Louis developed a new discipline of limiting the amount of debt it will allow its students to incur. By implementing these new guidelines, The Scholarship Foundation took upon itself the responsibility to at least conditionally denied applications it considers will leave the student with a level of debt that is too high. Therefore, it is no longer just a question of the student making a choice, but ensuring the student keeps his debt burden to a minimum. Debt Burden According to the Department of Education, 60% of students borrow money to attend college. But as borrowing has proliferated, knowledge about the process and its consequences has not. The fact that students take out loans based on what they need at the moment, rather than based on what they can afford in the future, is a clear sign that awareness is lacking. One common measurement is ―the 8% rule‖ (which states that students should not allocate more than 8% of their gross income to repayment of debt – see Greiner for details). Estimates show that the average starting salary for a college student is $35,000. The chart below looks at the average loan debt by type of school and subsequently the expected monthly repayment amount based on the 8% rule. Based on Mapping your Future’s online repayment calculator, this chart also shows just how much income a student should earn in order to afford their loan monthly payments.
FINANCIAL MATCH Percentage of Graduates with Student Loans and Average Debt2 Sector Average Loan Monthly Needed Yearly Percentage of Debt Payment (8% of Salary students with this income) debt $20,200 $232 $35,000 62% Public 4-year $27,650 $320 $48,000 72% Private, nonprofit 4-year $33,050 $380 $57,000 96% Private, for profit 4-year As challenging as this scenario is, there is another problem: The 8-percent rule refers not just to education debt but to all debt. So when a student starts adding car loans, credit card balances and even private loan obligations, monthly payments become unmanageable at the salary levels used in the chart. The Scholarship Foundation is starting to see an increase in requests to either defer or reduce current monthly payments. A quick calculation among a small SF sample suggests students’ average monthly payment allocation is closer to 12% of their gross income. Beyond the Obama Administration’s proposed regulations, there is no agreed-upon limit for what constitutes an acceptable level of student debt. (Baum and Schwartz, 2006). The Scholarship Foundation has calculated that borrowing the full portion of the federal subsidized Stafford loans (totaling $19,000 for 4 years) plus the full amount in SF interest-free loans (totaling $28,000 for 4 years) can allow its students to successfully achieve their academic goals and graduate with a reasonable and manageable level of debt. These two loans were also chosen because the nature of these loans is good debt and offer reasonable terms.
2
Calculations by the Project on Student Debt using data from NPSAS:08
FINANCIAL MATCH A case for financial match These kinds of financial realities present students with three options: 1. delaying academic pursuits indefinitely; 2. accepting the costs and becoming heavily indebted; or 3. making financially feasible college choices from the beginning, an option that gave birth to The Scholarship Foundation’s award letters workshop. Across the board, award letters fail to clearly answer basic questions about aid and cost. There are no standards for what colleges should include on a letter or how it should be displayed. This makes it extremely difficult to make sensible comparisons from one institution to another. The risk, of course, is that bad information can lead to poor decision-making. But help is on its way. The Department of Education has recognized this challenge. As of fall 2011, schools will have to comply with new regulations set by the U.S. Department of Education to ensure transparency of data (cost and aid awarded) as well as uniformity in the display of information. To address the crucial importance of financial matching, The Scholarship Foundation has developed a 3-part series of workshops that educates students on available financial resources, applying for financial aid and assembling the critical pieces of an affordable education. A workshop on financial aid award letters is part of the series. The curriculum of The Scholarship Foundation’s award letters workshop educates students and families on the pluses and minuses of different types of aid. It explains the formula used by financial aid offices and their criteria for making financial awards. Once students understand these basics, the workshop concentrates on the importance of comparing and assessing which schools ultimately are the most financially feasible, not based exclusively on
FINANCIAL MATCH tuition cost but on the best combination of total education costs and financial aid offers. For students without 100% funding, the workshop teaches self-advocacy strategies (i.e. what questions to ask, how to appeal adverse decisions). Also, the workshop shows students how to negotiate if the school they prefer hasn’t made the best offer. Finally, the workshop provides students with a list of resources to explore for possible private funding assistance. The Scholarship Foundation’s experience has shown that demystifying confusing terminology and teaching students how to accurately compare loan terms can be very empowering for them. A Picture of Success The Scholarship Foundation has come to know many students who have done thorough investigations of school and financial options to avoid winding up in situations like Rachel’s. One of these students is Anthony, who walked into The Scholarship Foundation in November 2009 with an application he intended to submit for funding to attend an expensive art program at a proprietary school in Florida. He was referred to our Program Advisor to discuss school choice. After months of research into nonprofit schools and many hard hours completing an application for a prestigious art school in Florida, Anthony had been was accepted to a dream school for computer animation. However, cost still remained an issue. Scholarship Foundation staff spoke with him and helped him understand the troubling math: He would have to borrow approximately $40,000 per year for the school of his choice, accumulating a crushing debt load by the time he graduated. Many more conversations followed to discuss scholarship options, loan options, debt burden, and alternative plans. Ultimately, a referral was made to an art teacher at
FINANCIAL MATCH St. Louis Community College, who recognized Anthony’s potential and encouraged him to consider Florissant Valley. After more thought, additional conversations with Scholarship Foundation staff, and reviewing program options, Anthony decided to enroll in the art program at St. Louis Community College at Meramec. He has honed his art skills, learned about computer animation, and kept his debt to an absolute minimum. To complete his work for a Bachelor’s degree, Anthony is now considering transferring to Webster University, an affordable 4-year school in the St. Louis area. Nathan came into Scholarship Foundation to submit an application for an interest-free loan. The staff answered his multiple questions. But when it came time to make a decision based on the financial aid award letters he had received from schools, he realized he needed more assistance. Fortunately, he came back to The Scholarship Foundation to get help. Nathan brought in six award letters, which he Program Advisor reviewed with him. At the time, he had focused on the University of Minnesota because the price tag seemed the most affordable of the six options. However, after looking at the math and comparing award letters for Minnesota, Syracuse, Purdue, and others, Nathan saw that a $27,000 scholarship from Syracuse would allow him to borrow less there than at Minnesota, even though Minnesota appeared to be more than $20,000 ―cheaper.‖ Nathan is enjoying his freshmen year at Syracuse and plans to graduate with approximately $30,000 in student loans. Had he attended Minnesota, his indebtedness at graduation would have been more than $100,000. The Scholarship Foundation now uses the worksheet developed for Nathan’s school cost comparison in its award letter workshops as an example.
FINANCIAL MATCH Conclusion This paper considers public policy, higher education research, institutional perspectives and student realities. It argues strongly that the college-choice process needs to expand to include financial issues. More recent public policy changes regarding college affordability have focused on the improvement of federal loan programs and repayment options to make college affordable: However, college is not affordable, the debt burden is staggering, and there is little reason to expect increases in state and federal funding for public colleges. More and more institutions will increase tuition and more aggressively recruit students to offset budget shortfalls. These trends are likely to continue, making accessibility more difficult for college-bound students. College access providers have both the opportunity and responsibility to educate students regarding a wide range of financial considerations. Attaining a college degree will not improve a students’ life if she graduates with unmanageable amounts of debt, defaults on her loans, ruins her credit and damages her employability. It is the hope of this paper to move the college access community toward making affordability as crucial an element of college choice as academics and psychosocial environment.
FINANCIAL MATCH Appendix
FINANCIAL MATCH References American Council on Education. (2004). Missed Opportunities: Students Who Do Not Apply for Financial Aid. Retrieved from http://www.princeton.edu/futureofchildren/publications/docs/19_01_09.pdf Baum, S., Schwartz, S. (2006). How much is too much? Defining benchmarks for manageable student debt. The College Board. Retrieved from http://projectonstudentdebt.org/files/pub/Debt_is_Too_Much_November_10.pdf Barriers to Higher Education. (2009). Middle Class Task Force. The Vice President of the United States Report. Retrieved from http://www.whitehouse.gov/assets/documents/MCTF_staff_report_barriers_to_college_F INAL.pdf Bound, J., Lovenheim, M., Turner, S. (2009). Why Have College Completion Rates Declined? An Analysis of Changing Student Preparation and Collegiate Resources. National Bureau of Economic Research Working Paper No. 15566. Retrieved from http://www.nber.org/reporter/2010number4/bound.html Comfort, W.W. (1925). The choice of a college. New York: The MacMillan Company. Danziger, S., Rouse, C. E. (2007). The Price of Independence: The Economics of Early Adulthood. New York: Russell Sage Foundation. Jones, T., Palazzolo, C. (2009). Beyond High School: Building Better Futures. St. Louis Regional College Access Pipeline Project. Retrieved from http://www.deaconess.org/UploadFiles/documents/Building%20Better%20Futures.pdf Dowd, A. (2006). A Research Agenda for the Study of Effects of Borrowing and the Prospects of Indebtedness on Students’ College-Going Choices. A working paper by the New England Resource Center for Higher Education for The Project on Student Debt. Retrieved from http://www.views.ticas.org/files/pub/Research_Agenda_NERCHE_TICAS.pdf Dynarski, S. M., Scott-Clayton, J. (2006). The Cost of Complexity in Federal Student Aid: Lessons from Optimal Tax Theory and Behavioral Economics. Retrieved from: http://www.ed.gov/about/bdscomm/list/hiedfuture/reports/dynarski-scott-calyton.pdf Financing the Dream: Securing College Affordability for the Middle Class. (2009). Middle Class
FINANCIAL MATCH Task Force. The Vice President of the United States Report. Retrieved from http://www.whitehouse.gov/assets/documents/staff_report_college_affordability1.pdf Greiner, K. (1996). How Much Student Loan Debt is Too Much? Journal of Student Financial Aid, 26(1), pp. 7-19. Halle, R.S. (1928). Which college? New York: The MacMillan Company. Nagoaka, J., Roderick, M., Coca, V. (2009). Barriers to college attainment: lessons from Chicago. Center for American Progress, 17. Retrieved from http://www.americanprogress.org/issues/2009/01/chicago_schools.html Palmer, M., Hayek, J., Hossler, D., Jacob, S., Cummings, H., Kinzie, J. (2004-09). Fifty Years of College Choice: Social, Political and Institutional Influences on the Decision Making Process. Lumina Foundation for Education. Retrieved from http://www.luminafoundation.org/publications/Hossler.pdf Steele, P., Baum, S. (2009). How Much Are College Students Borrowing? College Board. Retrieved from http://www.professionals.collegeboard.com/profdownload/cb-policybrief-college-stu-borrowing-aug-2009.pdf Taylor, P. (2010). The Rise of College Student Borrowing. Pew Research Center. Retrieved from http://pewsocialtrends.org US Census Bureau data. Retrieved from http://www.census.gov/hhes/www/income/histinc/ f10AR.html.
