Legislature: Student Loan Debt Is A Problem Best Addressed Head-On
Kathryn Johnson is a senior at Indiana University, and admits to not knowing anything about the thousands of dollars she borrowed to pay for her undergraduate degree. A bill going through the legislature seeks to reach students like Johnson before they graduate by annually updating them on their debt load. (Photo Credit: Claire McInerny/StateImpact Indiana)
The typical college student can probably tell you how much a latte at the campus coffee shop costs or how much they paid for a textbook this semester. But ask about the precise amount of student debt they’ve acquired, and it’s a different story.
This lack of knowledge about debt is due in part to the fact that students who take out federal loans receive information when they first apply for the money, and then when they graduate. They don’t get any information from the federal government (who issues the loans) in the four or so years in between.
A bill approved by the House and making its way through the Senate wants Indiana colleges and universities to fill in that gap.
- Pulling Back The Curtain On Student Loan DebtEven though a majority of people use federal loans to pay for college, many don’t stay on top of how much they owe once graduation comes around. A bill going through the Indiana legislature would require Indiana universities to annually update students on their debt load, and StateImpact Indiana’s Claire McInerny explains how how that initiative could work.Download
Student Loans: Out Of Sight, Out Of Mind
Indiana University senior Kathryn Johnson figured out she wanted to be a nurse last year. Her dad was hospitalized and she was fascinated by what she learned from the nurses.
“The more I talked to them and how they radiate positivity even when everything seemed so dark and dire and serious, I really appreciated how professional they could be and how uplifting they could be,” Johnson says.
To make her dream of being a nurse come true, Johnson did what a majority of students do to get through school: she took out student loans. With graduation approaching in May, Johnson is just starting to think about how these loans will play out in her future.
“I know this is terrible because I’m a senior but I haven’t thought at all about how I’m supposed to start paying that back once I’m done with my nursing program,” she says. “I have no idea.”
Johnson doesn’t talk to her family about her student debt or how to manage it responsibly. She just pushes it out of her mind.
Indiana lawmakers want to force students like Johnson to think about it. They are considering a bill that would require any university serving students with state-issued scholarships to give those students an annual update on their individual debt load.
How One Email Reduced Student Debt By Millions Of Dollars
Indiana University is already doing something similar to what the legislature is proposing. Since 2012, it has emailed students an annual summary of their student loans, including their interest rate and estimated monthly payments after graduation.
“It seemed like something nice we could do for students to help make their current debt situation more transparent and provide a little bit of education at the same time,” says Phil Schuman, Director of Financial Literacy for IU.
Even though the university has only sent out the letters for two years, Schuman says they’ve already seen dramatic changes.
“The university’s debt went down by I believe 12.4% or $31 million, and that’s system wide,” Schuman says.
(Take a look at an example letter from IU, which could serve as a template for the state’s notification if House Bill 1042 passes.)
Schuman and others who work on financial literacy at IU say the first step to reducing student debt is making students aware of their financial situation. Johnson says when she received her first debt letter from IU, it only scared her more and made her not want to address the idea of paying back the loans.
That reaction is what prompted IU to take its financial literacy project one step further. It started MoneySmarts, a program that helps students learn the logistics of taking out student loans, how to create a budget and reduce expenses during college.
The Availability of Federal Aid: “It Seems Almost Predatory”
Schuman says one of the most effective components of the MoneySmarts program is peer counseling, because students are more honest with and listen better to people in situations similar to their own.
Jamie Hill is one of the peer counselors in the MoneySmarts program, and says after working with so many students who don’t know the basics of loan repayment – like payment plans and deferring options – she thinks the current system of student loan repayment is broken.
“It seems almost predatory in a way that the government is giving this money and not really giving enough information about what this is going to look like after college and when you’re not in school,” Hill says.
As higher education keeps getting more expensive and more necessary, so do student loans. Through her experience working with students, Hill says the reliance on loans is something a lot students have trouble articulating to parents and other people who went to college a generation ago.
[pullquote]”I know this is terrible because I’m a senior but I haven’t thought at all about how I’m supposed to start paying that back once I’m done with my nursing program.” Kathryn Johnson, IU Senior[/pullquote]
“I’ve talked with numerous students about how do I talk with my parents about this in a very realistic way so that they understand what’s going on,” Hill says. “They don’t have the experience of paying off loans, because college used to be a thing you could work your way through.”
As graduation gets closer for Kathryn Johnson, she says she’s getting more stressed about how she will pay off her undergraduate loans while taking out new loans for nursing school.
“I don’t know anything about a payment plan or what it is that I would be doing after I graduate. I don’t even know who to contact,” Johnson says. “I think getting that information out there and more readily available for everybody in the country who needs this would be a huge advantage.”
If passed, the bill would require schools to inform students annually of the amount of loans taken out, an estimate of debt total and an estimated monthly repayment amount.