It seems like all the news about federal student loans is bad these days: lower borrowing limits, fewer repayment options, and fewer opportunities for loan forgiveness. Considering the history of these programs, it is not a calamity that cannot be overcome. Let’s face it, the federal financial aid programs as well as other Department of Education resources have been historically used to serve a political agenda. There are only two constants: students and parents will need to borrow to pay for higher education and they will need our help to be successful in repayment.

The current state is that many of the more flexible income-based repayment options have been, at least temporarily, ended and a single, less flexible plan introduced. Further, there is a battle to reduce the opportunities for borrowers to receive loan forgiveness either by limiting the type of employer in the Public Service Loan Forgiveness (PSLF) program (still being wrangled in the courts at this writing) or by requiring higher payments and a longer repayment term on the income-based repayment plan. These changes are certainly to the detriment of borrowers currently trying to repay their loans today. However, we still recall the days when there were no income-based plans and no loan forgiveness based on employment. Although default rates were significantly higher up until recently, people still managed, by and large, to repay their federal loans. Additionally, parents of undergraduates and graduate students regularly borrowed private education loans because the federal loans did not come close to paying the full cost. This is not a judgment that we had it worse back in the day, but rather a reference point to show how the programs change over time and how expectations go a long way to helping students borrow wisely and repay successfully.

Let’s look at some federal loan repayment metrics. Last summer the Education Data Initiative published several reports related to the federal student loan programs. It’s important to note that the effects of the policy changes noted above will not be seen for some time, so our focus for now is how borrowers are faring from the end of the COVID-19 repayment pause compared to the pre-COVID timeframe.

At the time of the report, outstanding education loans from all sources totaled $1.863 trillion of which $1.724 trillion was from the federal loan programs. The average balance owed in the federal loan program is $40,467. One particularly surprising metric is that student loan debt growth is now outpacing tuition and fee growth which has declined slightly over the last five years. This could possibly be because housing and food costs have grown significantly over the same period, but knowing this, it’s difficult to continue to blame higher education institutions alone for the borrowing explosion.

Next, we’ll look at borrowers’ ability to repay their loans. At the time of the report, 18% pf loans for students who attended private, not for profit vocational and technical schools in the first three years of repayment were at least 30 days delinquent while 2.23% defaulted. The average amount in default was $23,500. This is a small amount when you consider that most of the dollars are borrowed by graduate and professional students with significantly higher annual and aggregate loan limits. These metrics aren’t too scary; however, other trends suggest this will get worse particularly given the recent changes in the program. Federal guidelines stipulate that borrowers should not have to pay more than 10% of their income to satisfy their student loans, but many graduate/professional students found they would not be able to pay off the full amount borrowed at this rate. Additionally, new medical school graduate salaries are not sufficient to make any student loan payments. The remedy for this used to be requesting an economic hardship deferment for the residency years, but that program was eliminated and replaced with forbearance. It serves the same purpose of deferring payments, but interest will continue accruing growing the amount of the loan to be repaid.

Adding to the hardship of borrowers just starting to repay their loans is the fact that many should have entered repayment years earlier but were given an interest-free forbearance during the COVID-19 pause (March 2020 until September 2023). Although they should have expected, and probably did expect in some abstract way to have to repay loans at some point, this population seemed particularly unprepared. Perhaps not having to budget for these payments from the beginning required borrowers to make major lifestyle changes to afford payments that were likely several hundred dollars each month. Of course, during the pause, everyone’s favorite topic of conversation was loan forgiveness, so it’s not entirely surprising that many borrowers thought they would never have to repay their loans.

And that’s it, isn’t it? Perception is everything. Students choose not to apply to certain types of colleges because they perceive the cost as too high when available financial aid can make it an affordable option. Some believe borrowing student loans should be avoided at all costs or conversely, borrow whatever you want because you’ll never need to repay it. This is our challenge in the higher education community. How can we get the word out to our prospects, our students, and our alumni so they know what to expect and can make knowledgeable decisions about enrollment and loans?

There are four storylines that will aid in this endeavor:

  • Federal and even private student loans are not inherently bad and are often the only vehicle for students to be able to enroll at the institution of their choice.
  • Most students who need to borrow can successfully repay their loans.
  • Borrowers having difficulty have options to defer or reduce monthly payments and if the situation warrants it, even have some or all the loan balance forgiven.
  • There is a body at the Department of Education to help resolve disputes between borrowers and loan servicers; their services are free to borrowers.

Admissions officers attending college fairs often focus solely on scholarship or grant aid available even when their institution always includes student loans as part of the financial aid package. Make sure to bring the metrics regarding how many students borrow and subsequently successfully repay student loans when those financing questions come up. Skirting the topic entirely will create an unrealistic expectation that students don’t normally have to borrow to attend.

Financial aid administrators like to soften the blow when a student needs to borrow by jumping ahead to the conditions where the student may never have to repay the loan. Instead, focus on responsible borrowing based on the student’s planned career path after college. The conversation with a student attending a social work program should be much different than one attending an MBA program. Not to mention, as we’ve seen in recent years, the programs that exist today may be different or not available at all by the time these students need to repay their loans.

Alumni relations staff may not consider successful student loan repayment as their purview, but the reality is that when alumni struggle to repay student loans, they blame the entire institution and good will is lost forever. Because financial aid offices are hard-pressed to meet the needs of currently enrolled students, they require help from other departments to make sure alumni have the information necessary. If you have a regular newsletter or magazine, devote some space to resources for people repaying student loans like Federal Student Aid (general information about repayment options and calculators to help borrowers select the best option for them; information for borrowers having difficulty making payments) or the Federal Student Aid Ombuds Group (for borrowers disputing balance or payment information provided by their loan servicer).

As with everything else related to student well-being, it takes a village to provide end-to-end support services from prospect to alumni. We know students need to borrow to attend our institutions, so let’s make sure they have the right information to make the best decisions for their future.

Stay up to date about changes in the student loan programs and other financial aid topics by following the Higher Education Assistance Group Blog. Our regulatory experts share their extensive knowledge about how today’s issues affect you and your staff. Email us at info@heag.us if you have questions or want more information about our wide array of support services.

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