Loans affect College affordability

by Laura Weiss and Priya Ramaiah | 10/31/13 7:00am

10.31.13.news_.loans_Natalie-Cantave
Harvard, Princeton and Yale graduates have a lower average debt than students at Dartmouth.
Source: Natalie Cantave

Mike ’16, who is on full financial aid thanks to a need-based scholarship, federal grants and his work-study program, is adamant about not taking student loans and falling into debt before graduation. While loans are readily available, he focuses on jobs and does his best to cover extra expenses, such as textbook costs, without turning to them.

The student, who wished to remain anonymous to protect his financial aid status, said he chose Dartmouth over Stanford University, the University of California at Berkeley and other schools on the basis of his aid package, which offered him $4,000 more per year. He does not plan to take any loans as an undergraduate.

“They pretty much let you know that there’s say $2,000 or $5,000 that you could take out, and that you wouldn’t have to pay it back and it wouldn’t accrue any interest until your time at Dartmouth ends,” he said. “It’s nice to know they’re there if I need them but I don’t expect to use them.”

Mike is not the first to struggle with balancing the short-term benefits of loans with the potential long-term cost, nor will he be the last. The College offered around $96 million in aid to 2,424 students during the last academic year, according to the College Fact Book, and, like other schools, offers federal loans as well as institutional loans for those not eligible for the former.

In 2008-2009, the College gave $5,365 in average loans per year per student, and that number increased to $7,121 in 2012-2013.

The College began a no-loan initiative for the Class of 2012, but subsequently reinstituted loans for students in the Class of 2015 with family incomes above $75,000, financial aid director Virginia Hazen said. The maximum loan-free income was recently raised to $100,000, and students whose families earn incomes below the threshold receive full financial aid. Tuition has increased steadily in recent years, and Dartmouth currently holds the second highest cost of attendance in the Ivy League.

About 50 percent of the Class of 2011 graduated with debt, with an average of $16,615, according to the 2012 Project on Student Debt report. As a result, recent alumni and members of the Class of 2014 did not have loans included in their aid packages as the College aimed to increase affordability.

Vanessa Trinh ’14 said she was grateful that she came to Dartmouth before loans were reinstituted financial aid packages with the Class of 2015.

“In the future, I can think about going to grad school or business school or whatever I want to do because I don’t have loans from undergrad,” Trinh said. “I definitely feel very lucky that I came the time that I did. It actually played a huge role in my decision to come here.”

Although financial aid offerings change each year depending on need, the percentage of students receiving aid has remained near 50 percent over the past five years, and average total aid has increased by $1,000 to $2,000 yearly in conjunction with rising tuition costs, Hazen said. Recently, parents are repaying loans soon after students graduate to receive a lower interest rate.

“I don’t think that graduating without any loans is probably a realistic expectation for most students, because there will be a time when you haven’t had a chance yet to earn what we’re expecting you to make,” Hazen said.

Compared to peer institutions, Dartmouth students graduate with average debt, though New Hampshire ranks high for student debt. Brown University and the University of Pennsylvania have a higher average debt than the College, while a lower proportion of graduates had debt. Cornell University students averaged higher debt than Dartmouth students with the same percentage of graduates accruing debt, while a lower percentage of Harvard University, Princeton University and Yale University graduates had debt, and average debt was lower than that at Dartmouth, according to the debt report.

About two-thirds of students across the nation graduating with a bachelor’s degree have student loan debt, with the average national debt for the Class of 2011 coming in at $26,600, nearly $10,000 more than the average debt for seniors at the College.

Though private nonprofit four-year schools such as Dartmouth tend to have higher tuition and fees than state schools, large endowments allow them to provide generous grant aid.

“No loans doesn’t mean no borrowing,” said Matthew Reed, program director for the Institute of College Access and Success. “Some students or parents may still need to borrow to cover the expected family contribution or possibly the expected amount from work-study programs.”

The decrease in recent years of the percentage of students on financial aid could be because the economy picked up, and families have more resources than they did a couple years ago, Reed said. As College costs continue to rise at a higher rate than family resources and available grant aid, however, there may continue to be an increased need to borrow.

Some students, meanwhile, rely on loans to support smaller financial aid packages. Alex Johnson ’16 took out as many loans as possible through College and federal programs while working four jobs. In some cases, he has had to take out private loans to get enough money for certain costs. Johnson said he is not concerned about accruing debt at this point, since he plans on attending medical school and paying off loans later.

“It does affect me on campus,” Johnson said. “It makes it a lot more difficult to not only make more time to do more homework and whatever, but also that schedule part of having to work as well often times conflicts with office hours or meetings or study groups. So I guess in that way it also affects my options for the best opportunities.”

Mike said his work-study, which he could substitute for a loan, consists of research, which helps him develop skills while still satisfying his work requirements. These jobs have the same time commitment of an extracurricular, but he said he found this justifiable.

“Without financial aid I’d be a lot more stressed,” he said. “That being said, I still have to work for some of the money, so I still have to work when others may not have to.”

Other funding sources for undergraduates exist independently of the College and federal programs. Chileta Dim ’17, a recipient of the Gates Millenium Scholarship, said that the funding from the Gates Foundation allowed her to come to Dartmouth without financial burden. Though the aid package she received from Dartmouth did not include any loans, it did expect her to complete work-study all four terms a year, which would have limited her extracurricular pursuits at the College.