Three ways wise borrowing for college can benefit students

College affordability is receiving a lot of attention from federal policy makers and the media alike. Student loan borrowing has also become an issue, much of it couched in sensational stories of individual students with huge student loan debt. As a result, students and families are approaching the prospect of borrowing for college with much trepidation and pause, and often are uninformed or ill-advised as to what borrowing may mean for their personal situations. This is where your role as an admissions and financial aid advisor is of key importance in helping a family to sift through the facts and make a decision to invest wisely in a student’s future.

When we look more closely at the issue of student loan indebtedness, very few students actually have the kind of crushing debt that has made headlines in the news. In a February 2015 survey of college-bound high school students and their parents, respondents were asked to estimate the amount of debt a student would accumulate by graduation. They responded with a mean value of $42,033. This is well above the national loan debt average of $28,400 for those obtaining bachelor’s degrees. While that is still a significant amount of debt, many college students graduate with debt levels well below that figure. A recent report for the New York Federal Reserve Bank showed that 40 percent of student borrowers have less than $10,000 in debt and 70 percent have less than $25,000 (Additionally, most parents have saved less than $10,000 for their oldest child’s education.)

Although the economic climate is still difficult for many families, one fact remains true from both politicians and researchers—supporting students to achieve higher education helps them secure gainful employment and growth positions in the workforce, which fosters individual advancement as well as collective advancement for the country as a whole.  And while there have been an increasing number of pundits and politicians questioning the value of college in an era of escalating costs, there are three reasons why informed borrowing for college is still one of the best investments students can make:

1. Student loans help provide access to and pay for college. Student loans are part of the financial equation for a majority of students attending college – more than 70 percent of the class of 2014 graduates borrowed through student loans. The flip side, though, is what would these students have missed if they didn’t make the investment in the first place? College graduates earn more—$45,500 compared to $28,000 annually for high school grads (according to a 2014 Pew report). They are also more likely to have health insurance and retirement savings (which they will need because they also live longer).
2. A college education is worth more today, both in earnings and job satisfaction. Not only do college grads earn more, but the negative cost of not going to college is increasing for this generation of young people. Those with just a high school diploma fare worse today than their peers from earlier generations—22 percent of millennials with only a high school diploma live in poverty compared to 12 percent of boomers who hold only high school diplomas. According to the 2014 Pew report, only 57 percent of high school grads state they have a career-track job compared to 86 percent of those with a bachelor’s degree or more.
3. Student loans can help establish and build a credit score. Most traditional freshmen enter college with no borrowing history. They go straight from their parents’ home to the residence hall. It can be difficult for young people to get a credit card and build a positive credit history. Having good credit is important in achieving other milestones such as renting, borrowing for a car, or a home mortgage. As a form of debt, student loans are part of the credit score, and demonstrating the ability to manage recurring debts on time can go a long way to enhancing the score.

Fearing student loans alone is a poor reason for a student to base college choice upon. Our role as educators and advisors is to help students and families understand what the opportunities and risks are,  to consider the true costs associated with a college education, and to make informed decisions which relate directly to their personal family situation. The key is to ensure that students and families are borrowing knowledgeably and responsibly, making a sound college choice for those who are ready to attend.

Communicate the cost of attendance clearly, and start a cost dialog with students

Trying to understand the actual cost to attend college is difficult for many prospective students and parents. While there are cost calculators available to help them, including the one provided by the federal government, many do not factor specific institutional merit aid.

Ruffalo Noel Levitz does offer a net price calculator that can include nearly any form of merit aid from a campus, along with federal aid and loans that the student would be eligible for.  Calculators that incorporate this level of institution-specific aid make it far easier for students to assess their true cost of attending college.

It’s also important to engage students in the cost conversation early, so that they can understand the real cost as well as the real value of attending your institution. Make it easy for students to reach out with financial aid questions, and review your financial aid communications for clarity and completeness. Ask yourself: if you were a student, would you be able to follow your own aid letters?

I also am happy to discuss strategies and questions about awarding and financial aid communications. Email me and I will share what I have seen working at other campuses.