Paying for College: Student Loan Introduction and

NC2172 Research Overview https://learn.extension.org/events/2080#.VSgoH00tGM8

eXtension Financial Security for All (FSA)

Community of Practice (CoP) Barbara O’Neill, Ph.D., CFP®

Rutgers Cooperative Extension oneill@aesop.rutgers.edu

Student Loan Overview: Two Big Concerns

• Increasing frequency of use by students – Going to college effectively means going into debt

for a majority of American college students • Increasing outstanding student loan debt

burdens – College graduates – Those who do not complete a degree program

and lack an income boost to help repay debt

College is Expensive! • 2003-2013: State funding for colleges decreased by

12% and median tuition rose 55% across all public colleges

• Students have two methods of elasticity in response to increased college costs

– Select a lower cost college to attend

– Graduate with more student loan debt

Source: Higher education: State funding trends and policies on affordability (December, 2014). Washington, DC: Report to the Chairman, Committee on Health, Education, Labor, and Pensions, United States Senate. U.S. GAO. Retrieved from http://www.gao.gov/assets/670/667557.pdf.

Student Loan Statistics • In 2010, total outstanding student loan debt rose to over $800

billion, overtaking credit card debt for the first time, as well as auto loan debt (only mortgages have a higher debt total): https://www.aeaweb.org/articles.php?doi=10.1257/jep.26.1.165

• April 2015: Student Loan Debt Clock reports $1.3 trillion owed – http://collegedebt.com/

• Average amount of debt owed by graduating students in 2013 was $28,400: http://ticas.org/sites/default/files/legacy/fckfiles/pub/classof2013.pdf

• In 2012, 71% of all students graduating from 4-year colleges had student loan debt – http://ticas.org/sites/default/files/pub_files/Debt_Facts_and_Sources.pdf

More Student Loan Statistics • Average cumulative debt of bachelor’s degree

recipients increased – 9% between 2002-03 and 2007-08 school years – 24% between 2008-09 and 2012-13 school years – Graduates of for-profit colleges have higher amounts of

debt than those of public and private non-profit colleges – http://trends.collegeboard.org/student-aid/figures-tables/average-

cumulative-debt-bachelors-recipients-public-four-year-time

• The monthly average student loan payment (2010 SCF data): $242 – http://www.brookings.edu/research/papers/2014/06/19-typical-student-

loan-debt-akers

Student Loan Impacts On Students • “Generation indebted”

• Opportunity costs (e.g., “crowding out effect”)

• Postponed savings, reduced wealth accumulation

• Emotional distress

• “Living a postponed life” (marriage, family)

• Career choices

• Stifled entrepreneurship

On Society • Reduced/delayed home and

auto purchases

• Decreased/delayed family formation

• More young adults living with parents and impacting parents’ finances

• Lifetime wealth loss impacts (money that isn’t available to be spent or invested)

• Stifled entrepreneurship

Taken Together, All of the Data on the Previous Slides

Beg the Question… • What were students and/or their parents

thinking when they made student loan decisions?

• Did they fully understand the implications of their student loan borrowing decisions?

NC 2172 • Multi-state research group composed of Extension specialists

and teaching/research faculty: http://www.lgu.umd.edu/lgu_v2/homepages/member.cfm?trackID=15376

• 10/1/13-9/30/18 research theme: Behavioral Economics and Financial Decision-Making and Information Management Across the Lifespan

• In other words, how households make financial decisions

• Results will inform efforts to improve financial decision-making

• Three research topics: decisions about funding education (student loans), retirement, and housing

http://www.lgu.umd.edu/lgu_v2/homepages/outline.cfm?trackID=15376

Student Loan Research: Experimental Design

• Purpose: To measure participants’ attitudes and willingness to take on student loans

• Online respondents were presented with a scenario describing a young person who is deciding to either attend college or go straight into the workplace

• Three different treatments were tested to determine if additional information presented as a treatment (e.g., return on educational investment) affects their determination of the prudence of borrowing

• Participants were randomly assigned to one of three surveys (treatments vs. control by Survey Sampling International (SSI))

Student Loan Research: Focus Group Study

• Purpose: To understand decisions that students made with regard to college selection and student loan borrowing

• Three rounds of data collection: two campus-based samples and a sample via SSI

• Data collected via an online course platform that enabled students to “talk” with one another

• Rich qualitative data indicating students’ decision-making processes and their knowledge, thoughts, and emotions related to student loan debt

• A journal article reporting research results is in progress

Focus Group Questions • Question 1: How did you decide which colleges or universities to attend?

• Question 2: How did you feel about borrowing money for college?

• Question 3: What assistance/sources of help, if any, did you use before making the decision to take out a student loan?

• Question 4: Tell me what you know about your loans.

• Question 5: How do you think your student loan debt will affect you economically after graduation? Please explain. (Examples: your monthly loan payment, ability to rent apartment, get a car; ability to buy a house or how much house can be purchased, saving for retirement, starting an investment program, maintaining a relationship that might lead to marriage).

Focus Group Questions • Question 6: What factors influenced your decision to accept the type of

financial assistance you are using?

• Question 7: How has the amount of financial aid you’ve requested/received affected the number of college credits for which you’ve enrolled?

• Question 8: Thinking back to a time when you received a student loan refund (i.e. borrowed funds remaining after tuition and fees were paid), tell us how you or someone you know, used those available funds. (Examples: saved for a future semester, invested the money, paid off other loans, room and board, miscellaneous spending, etc.)

NC 2172 Team Student Loan Literature Review

Refereed Journal Article Cho, S.H., Xu, Y, & Kiss, D.E.(2015, March). Understanding Student Loan Decisions” A Literature Review. Family and Consumer Sciences Research Journal, 43(3), 229-243. http://onlinelibrary.wiley.com/doi/10.1111/fcsr.12099/abstract Examines theories related to student loan debt, effect of student loans on college education, and effect of student loans on post-school life circumstances

eXtension Student Loan Web Page

• Includes information about student loans, the Federal Student Aid (FSA) Financial Aid Toolkit, and other FSA resources

• Will eventually include NC 2172 research briefs

http://www.extension.org/pages/72895/student-loans

Questions? Comments? Part 2: Cindy Forbes Cameron from Federal Student Aid will describe the resources in the Financial Aid Toolkit:

• Outreach resources such as fact sheets, videos, infographics, and PowerPoint presentations

• Social media resources such as sample tweets, Facebook posts, and blog posts

• Information on embedding videos and infographics

• Ideas for newsletter articles or e-mails to students