Entrance and exit loan counseling bookend the college experience for student loan borrowers. But there are not always intermediary prompts for borrowers to evaluate whether they’re taking too much as they go through each year of school.
That’s an issue financial aid administrators across Indiana University’s (IU) seven campuses have tried to combat over the past two years. All enrolled borrowers now receive individual letters annually, complete with their accumulated debt burdens and estimated monthly payments. The letters arrive before borrowers take out loans for the upcoming school year and, administrators hope, help them to better conceptualize the debt they’re amassing.
“We’re hopeful the letters are going to help students step back and understand how much their payments are going to be, [and ask] is there a way around taking out loans?” said Jim Kennedy, associate vice president and director of financial aid for the IU system.
After receipt of the letters, IU borrowers also have to manually confirm they want to take out annual loans. The two proactive tactics are likely at least part of the reason federal Stafford loan disbursements dropped $31 million (or 11 percent of IU’s total) in less than a year, as Bloomberg recently reported.
Aid officers harness PeopleSoft technology to pull data for each letter, and plug it into a template created by the IU System’s Financial Aid Compliance Officer Jenny Stephens. Creating the template was the hardest part of the process, Stephens said.
“Any financial aid officer will tell you getting at these numbers is very difficult,” she said. “In the process of getting there, we realized all of the things that we could not count.”
Thus, the template includes multiple caveats, including for its interest rate calculations, and stresses that the figures in the letter are only estimates. It also includes actionable advice – such as, “There is still time for you to reduce future debt by planning your expenses carefully and borrowing only what you really need” – and links to resources on and off campus for help with budgeting and repayment.
A future iteration of the template could include links to salary information for specific fields, to further help students realize how their monthly payments will align with possible earnings.
The template can be slightly tweaked by individual financial aid offices, depending on their audience demographics. IU—Bloomington law students receive greater detail about repayment plan options, for instance. Some campuses choose to send the letters over email, while others prefer to reach their students by post.
Financial aid administrators interested in creating an annual debt letter can reach out to IU administrators for help, Kennedy offered.
Like so much in higher education, beginning a letter campaign will likely be most effective with institutional buy-in. At IU, it’s just one of several efforts to increase financial literacy among students, and part of a multi-pronged approach that permeates advising and instruction, too.
“It really comes down to a university-wide perspective,” Kennedy said. “The financial aid piece is very important, but everybody really needs to be plugged in.“
Publication Date: 7/23/2014