Despite cost trend, student debt is inching downward

Even as the cost to attend Iowa State has risen, financial aid staff have made some headway in helping undergraduate students reduce their average debt at graduation. Director of financial aid Roberta Johnson said the average debt for last spring's graduates dropped below $30,000 for the first time in six years, to $29,455. About 70 percent of Iowa State undergraduates finish with some debt.

The biggest piece of that average debt (and one that has risen steadily in the last five years) is about $22,700 in federal loans, whether need-based or not. Johnson said federal loan debt – with fixed interest rates, deferment options in emergencies, and, in many cases, subsidized interest while a student remains in school – is preferred to private loans, for which a co-signer wasn't mandatory and the interest rates could change quarterly.

So, if the yearly cost to attend Iowa State is climbing – from about $11,700 a decade ago to about $18,500 this year for an in-state undergraduate – how do you reduce student indebtedness?

Johnson said communication has been a big contributor. "We're talking about it a whole lot more," she said, "not only with students, but with parents at summer orientation, too."

The university's annual financial aid award letters this spring will include a student's total indebtedness to date as well as monthly payments for that debt level. Previously, that information was available online and the award letters provided a web address.

"It's an overt way to bump up their knowledge of their debt and what that payment number looks like," she said. But, it also may compel them to turn down a loan that isn't need-based or look harder at a work-study opportunity.

Financial literacy for students

Financial literacy efforts also ramped up several years ago. Enrollment in a new elective course on personal finance has grown steadily from 77 in fall 2009 when it was launched, to 373 last fall. It is offered every semester. The Government of the Student Body (GSB) provided funding for human development and family studies faculty to develop the one-credit, online course. It gives students knowledge about basic issues such as budgeting, credit, credit cards, student loans and insurance -- and campus resources that can help them. No ISU college requires its freshmen to take the course yet.

Johnson said GSB's interest in student debt and financial literacy has remained strong despite the annual leadership change. For example, a GSB-funded campaign on CyRide bus panels encouraged students to "Know Your Number" – that is, their cumulative debt total. Through a new club known as CyGold, trained students will share information with their peers on basic budgeting concepts and a variety of resources they can use for more information.

Johnson's staff also encourages students to use these free online resources:

  • Her office partnered with the National Endowment for Financial Education to offer a Cash Course website for Iowa State students that offers noncommercial information about financing a college education. She said some academic units are asking students to use specific modules on this site.
  • The nonprofit Iowa Student Loan offers Student Loan Game Plan, an online real-time simulation that demonstrates how student loan debt might impact a student's financial future, specifically what a student's monthly payments could be following various borrowing scenarios.

Beyond $$ literacy

At Iowa State, there's also been a slight growth in federal PLUS loans – parent loans for their undergraduate children. Five years ago, PLUS loans accounted for about 8 percent of all undergraduate financial aid; last year, it was just over 10 percent. PLUS loans don't figure into a student's debt, but they also signal that parents are involved, said Doug Borkowski, director of the Student Financial Counseling Clinic.

"We hope that mom or dad might be saying, 'Wait a minute. How much of that [debt] is really needed?'" he said.

Iowa State offers various payment plans to give students and families options for covering their costs. Staff in the accounts receivable office have marketed the 9-, 10-, 11- or 12-month payment plans, with results. In fall 2008, 421 student families enrolled in one of these; this fall, 816 families did. Office director Duane Reeves said participation in the various payment options ebbs and flows, driven by other variables.

Reeves said his office is seeing an explosion in "529" plan payments. State education savings plans were created as a result of new Internal Revenue Service code in 1996; Iowa's dates to 1998. While categorized as a family resource, not financial aid, they allow families to invest in college costs before and during the college years – and ultimately can reduce reliance on loans. Two years ago, Reeves' office worked with 393 plan users; this fall it was 698 plan users. 

The bright spots

Johnson said university financial aid gives her staff the most flexibility to respond to student need and reward high achievement. State Board of Regents policy requires that a certain percentage of tuition dollars be "set aside" for grants awarded based on need and/or merit. For the last few years, the requirement was 15 percent, but Iowa State leaders set the bar a little higher: 23.5 percent. Last year, that generated $48.5 million in undergraduate student aid.

Another bright spot at Iowa State is in the growth of college and university scholarships on the tail of a successful capital campaign. The annual infusion of student support (undergraduate and graduate) from ISU Foundation accounts grew from $9.9 million in 2002-03 (pre-campaign) to $16.1 million last year.

Challenges remain

In spite of the progress made on lowering student debt, some variables don't show much sign of improving, Johnson said. They include:

  • Annual tuition increases. Cuts in state appropriations over the last decade have compelled the regents to approve tuition increases, shifting more of the cost of an education to students and their families. The last five years have seen tuition increases ranging from 3.2 percent to 6.0 percent for in-state undergraduates. These were modest compared to double-digit increases in 2002-03 and 2003-04.
  • Increases to the federal Pell grant, a need-based award, haven't kept pace with the cost of going to school. In 2001-02, the maximum Pell grant was $4,000 and the estimated cost of attending Iowa State for a resident undergraduate was about $11,000, a gap of $7,000. Last year, the maximum Pell had risen to $5,550, but the cost of attending school had risen to an estimated $18,900, creating a gap of about $13,350. Most students don't actually receive the maximum; the average Pell award at Iowa State last year (2010-11) was closer to $3,700, Johnson said.
  • Reductions to federal and state work-study funds. In 2000-01, Iowa State students earned about $1.4 million in federal work-study dollars; this year, that figure is about $950,000. During seven of those same 12 years, there have been no state work-study funds, including the last three.
  • Johnson said many states have a state-funded grant program for public university students. In Iowa, the opposite is true: A majority of state grant funding is reserved for students at Iowa's private colleges and universities. For example, last year, there was $2.4 million appropriated for All-Iowa Opportunity Scholarships; $477,000 was awarded to Iowa State students. The Iowa Grants program disbursed about $850,000 to public, private and community college students, of which $130,000 went to Iowa State students. By contrast, the Legislature appropriated $44.8 million for the Tuition Grant program, which assists only students at Iowa's private colleges.

In the most recent (2009-10) survey on state financial aid, completed annually by the National Association of State Student Grant and Aid Programs, Iowa ranked 48th in the percentage of state need-based grant dollars going to students at a public university and 41st in actual dollars awarded to public university students, finishing ahead of only South Dakota, Wyoming, Alaska, Georgia, Mississippi, Hawaii, Montana, Utah and Alabama. Iowa ranked 25th in total state grant funding.

"Despite these challenges, we have continued to reduce debt," Johnson said. "I believe it is proof that there is no 'silver bullet.' We just need to continue attacking this issue on multiple fronts.

"More money from scholarships and grants certainly reduces debt, but so does helping students make conscious decisions about how they spend their money. Ultimately, the decision on whether – or how much – to borrow is theirs," she said.