Graduating with debt

By Nina M. Riccio / Publications Writer

"Only the educated are free," the ancient philosopher Epictetus once said. That may be true, but getting that education is hardly free. At Fairfield this year, tuition plus room and board will top $40,000. Meanwhile, the average debt burden for Fairfield's graduating Class of 2006 is $28,300. It inches up each year as the cost of attending college escalates, and it's certainly not unusual to find young alumni with college loans far higher than that.

Take Kristen Smith '04, and her fiancé, Jordan Michels '05, for example. Together, they're facing a whopping $150,000 in loans, which amounts to approximately $1,500 a month for the next ten years. Most of the burden is Michels'. He worked for a year after high school to save for college. Then he declared himself financially independent and worked more than 30 hours a week while pursuing his degree in finance. He still needed $100,000 in loans. To earn enough to meet his monthly payment, he now commutes almost two hours into New York City every day. Though he enjoys his work, it's likely he could have found something similar closer to home if he didn't need to command the higher salary.

Smith, who works as communications coordinator for Fairfield University's Office of Undergraduate Admission, says that the loan agency Sallie Mae "has bent over backwards" to create a reasonable payment plan, and will defer loans when and if Michels pursues his MBA. (Smith is currently finishing up her M.A. in American Studies at Fairfield; as an employee, her tuition is waived.) 

Though most parents save what they can for college, it's rarely enough. Smith's parents, for example, realized that their college account – begun when she was small was no match for a decade of higher-than-inflation tuition hikes, and would only stretch for one year. Because her father owned his own business, Smith's needs were not considered that great. Middle class families like the Smiths are further squeezed because of the housing market; when the value of their homes goes up, so does their paper wealth. That translates into a bottom line that looks too healthy to qualify for substantial aid.

Augustine James (A.J.) Keirans '00 experienced that same ‘middle class' squeeze. The Pennsylvania native received "a pretty good financial aid package" his freshman year, but the total did not keep up with tuition increases in subsequent years, despite the fact that he is one of four children. "My family fell into that middle category, where my parents made too much money to qualify for a big aid package," he says. He graduated $49,000 in debt, and feels fortunate that he likes his current position in the market research firm where he has worked for five years, he explains, "because being in debt means you can't just pick up and leave a job that doesn't make you happy."

Like Keirans, Haley Sofiane graduated in 2000 with a load of debt: a total of $45,000, which translates into a $300-plus bill each month. That debt has affected her decisions since graduation big time. "I had always dreamed of going into international broadcast news," says the onetime Spanish and communication major. But the positions she explored paid an average of $26,000, "and I knew I could never afford my living expenses with those loans hanging over my head." Now she's married and has a child, and says she's happy with the career path she ultimately took – she's a portfolio manager at Anthem Blue Cross – but those loans continue to affect her decisions, and she's put off graduate school for the time being.

How can this be?

A generation or two ago, a student who worked hard during the summer could make enough money to substantially ease his or her college tuition bill. That's no longer the case, as the money from hourly summer jobs can't make a dent in tuition costs that have risen twice as fast as low-wage pay. Pell Grants – those government stand-bys that have long helped low-income students get to college – have been capped at $4,050 for five years in a row, and there's no sign that the cap will be lifted anytime soon. (And not every student qualifies for the maximum.)

This leaves students and their parents with one option – bigger loans. Indeed, loan volume has risen by 137 percent, and the average debt for a graduating senior is 50 percent higher than it was 10 years ago. For Fairfield, the third youngest of the nation's 28 Jesuit schools, these numbers highlight an ever more urgent need to build another set of numbers: the financial aid endowment which, when large enough, will be an effective source of scholarship aid.

Until this happens, Fairfield (and its peers in Jesuit and private higher education) must draw on tuition and Annual Fund gift revenues to increase the financial aid budget. According to the Rev. Charles Currie, S.J., president of the Association of Jesuit Colleges and Universities (AJCU), "AJCU schools, in their commitment to needy students, collectively provide more than $600 million in institutional grants – three times the amount provided by federal grants."

Because a major goal of Fairfield University's recently developed 10-year strategic plan is to increase the racial and socioeconomic diversity on campus, the need to address the financial aid question is strong. To this end, Fairfield added $3 million in 2006-07, bringing institutionally funded dollars to more than $25 million. Much of the increase was targeted for students of limited economic means. Even that doesn't solve the debt burden, which can be particularly risky for low-income students.

"For many of our students, there tends to be a family network behind them, so if a graduate runs into a hiccup a year or so out of college, the family can generally help him or her out," observes Judy Dobai, associate vice president  for enrollment management. "That may change with Fairfield's increasing commitment to economic and racial diversity. As Fairfield looks to stretch and grow and truly reach out to those of limited economic means, the University will have to extend itself even more financially. Most of these students won't have the family safety net if they find themselves in financial difficulty."

The financial aid maze

College tuition is such a major family expense – and applying for aid requires so much paperwork – that most schools have a staff of professionals on board to negotiate the best financial aid packages for incoming freshmen. Approximately 68 percent of Fairfield students receive some form of financial aid, with the majority cobbling together a series of scholarships, grants, and loans, though the bulk of assistance today is through loans.

"Today's students are more educated about the procedure. They do their research on the Web. In terms of borrowing, they understand the process more," says Erin Chiaro, Fairfield University's director of financial aid. "This year, students coming in September are going to have some of the best loan terms I've seen."

With the changes to student loans outlined in the government's Deficit Reduction Act of 2005, "students will eventually be able to borrow more money through Stafford loans," says Chiaro. "That's the good news. Unfortunately, the interest rates will change from a variable to a fixed rate, which will be somewhat higher than in the past. We've become comfortable with the record low rates we've had for the last three years," he adds, noting that the rates are set by the government and are calculated on the U.S. Treasury Bill, plus 3.1 percent.

Fairfield's student borrowers tend to have strong borrower benefits with their federal and alternative student loans. One reason they have attractive benefits, explains Chiaro, is that their default rate is so low. "While the national default rate is 6 percent, the current default for Fairfield alumni is .8 percent. That gives Fairfield University students an advantage because our student borrowers are a desired population." Chiaro and his team work with several lenders and scour the market for the best rates and processing fees.

Fairfield's default rate is notably low for a number of reasons. For one thing, the retention rate for incoming freshmen is strong, so students are more likely to graduate in four years than students from other universities are. The Financial Aid Office is careful with loan counseling, so most students are well aware of what they're getting into. Finally, the University has a good reputation in the business community, which means new graduates are able to secure solid employment.

Even with these advantages, the prospect (and reality) of huge debt is enough to put even the most ambitious, hard working, low- and middle-income students in a bind. And Fairfield's task is to tap in to students who have academic promise and allow them to get degree without having to mortgage their futures and pile on more debt than they'll be able to handle. After all, says Smith, that debt "does affect our decisions in every way."