Understanding Student Loan Debt

By Valerie Benjamin

Michael Morency remembers the excitement he felt when opening his acceptance letter from Pace University three years ago. Out of the 15 schools he had applied to, Pace was the only one that he could picture himself attending. He remembers the financial aid letter but he wasn’t able to decipher what each numerical figure represented. Nevertheless, he signed his loan forms and borrowed the money anyway. However, Morency now realizes that he made the wrong choice.

“I took out $20,000 in private loans in addition to my federal loans during my first year at Pace,” said Morency.

“I had no idea what I was doing,” he added. “I don’t think that high school students are at a level of maturity where they should be required to sign for loans without adequate loan counseling.”

“For many students like myself, I was just eager to begin classes so I took out whatever it took whether logical or not,” he said.

Today, student loans rank second to mortgages as the biggest  source of personal debt in the United States. According to The Federal Reserve Bank, Americans owe $1.2 trillion in student loan debt, a number that has tripled in the last decade. Morency now attends the University of Massachusetts Dartmouth, a state school where the cost of attendance is roughly $30,000 less per year than Pace.

“If I would have understood the cost effects when I first applied to college, I would have started off at UMass Dartmouth or an even cheaper school,” said Morency.

The confusion begins in high school, when students and parents must fill out the Free Application for Federal Student Aid. Many students find the wording of the FAFSA to be both overwhelming and confusing; the many documents that the FASFA requires for verification can be difficult for families to retrieve and mistakes are easily made.

Financial aid letters can be even more confusing. Award letters typically include a combination of both subsidized and unsubsidized loans, scholarships and grants. Given that financial aid letters are most students’ first real experience handling their own finances, many do not make the distinction between loans and aid. This is where they walk into debt.

Jasmine Hicks, a recent Northeastern graduate and higher education campaign director at Young Invincibles, a national non-profit organization that educates and advocates for young people, says that she doesn’t think  the literature on the FASFA and award letters is not transparent enough. As a result, students often borrow unnecessary money.

“I think that the language of the FASFA is very confusing, it requires so many components that it can feel overbearing if you haven’t been through it already. The FASFA truthfully only needs to ask you two simple questions to be able to determine your family income, but instead they ask for tons of documents that can sometimes be difficult for students to get access to,” said Hicks.

Breannah Conwrad-Lewis a Boston native and senior communication student at University of Massachusetts Boston, chose to complete her undergrad at UMass because her family felt thought  it would be the most financially sensible choice. However, she also struggled with understanding her award letter before she chose UMass.

“The financial aid office pretty much just gives you what they give you without a simple and comprehensive break down of what it all means. They give students refund checks for $4,000 at a time, students perceive that as free money,” she said. They don’t tell students that that amount will triple by the time they graduate,” said Lewis.

Financial aid officials suggest that a student only borrows as much money for undergrad that they can expect to earn during their first year of salary post graduation. However, many students like Gianna Mathes, a junior at University of Massachusetts Amherst were unaware of that rule. Mathes now anticipates nearly three times more debt than her expected salary as an entry level social worker.

“According to my EFC (expected family contribution) my mother is expected to contribute $19,000,” she says. “But in reality she wasn’t able to contribute anything and now I have been forced to rely solely on private loans. As a single mother she works two jobs trying to make ends meet for my sister and I,” said Mathes.

In response to the concern for student debt,  Massachusetts Senator Elizabeth Warren created a student loan refinancing bill. The bill is designed to create loan modifications for student borrowers with older loans that would reduce interest rates, forgive interest, and reduce principal.

However, the bill was blocked by Republicans and fell short of the 60 votes it needed to advance during a Sept, 16 2014 vote. Warren announced that she will continue advocating for the bill throughout the remainder of her current senate term.

While students hope for a breakthrough in legislation, Hicks says that it is crucial that both incoming college students and graduating college seniors increase their financial awareness.

“High school seniors should exhaust all of their resources, whether family members and friends who have already gone through the process, guidance counselors, non-profits or literature off the internet–the information is out there,” she said. “Students should also apply for scholarships as a first resort; not enough students apply for them.”

Young Invincibles, UASPIRE and Bottom Line are a few of the many national non-profits structured to decrease student loan debt through financial education and advocacy.

The advice that Hicks offers college juniors and seniors is simple: ask questions and do research.

“As college students, it is important to understand what your individual loan status will mean for you when you graduate. Learn what this means for you and get an estimate for what your monthly loan payments will be in comparison to your yearly salary at your desired job,” she said. “Don’t wait until you’re a senior to check your loan balance because there may be ways for you to start decreasing it.”