When Western Governors University broke down student performance based on student debt loads, it found those who transferred into the online university as undergraduates with more than $30,000 in debt were significantly less likely to graduate than their peers. At the graduate level, the line of demarcation was at $40,000.
So the university took action.
WGU got a waiver from the Department of Education under its Experimental Sites program to limit the unsubsidized loans students who were over the risk thresholds could take out. It also got a waiver from the department's equal disbursement guidelines, giving students in programs with hefty fees one semester but not another the opportunity to take out only as much in loans as they needed. Before the waiver, nursing students accepted a higher loan amount to cover a science fee in the first term that was duplicated the second term. Now they can get unequal loan disbursements and avoid additional debt.
Beyond the waivers, WGU started making recommendations to students in their financial aid packages, encouraging them to take out less money in loans than they are technically eligible to borrow by Department of Education standards.
At Western Governors, “direct costs” are considered to be tuition and fees. Indirect costs are housing and meals, books and supplies and other educational costs. While the total cost of attendance is estimated at $13,270, the direct costs are just $6,070. Because the university is entirely online, students have minimal books and supplies expenses and their housing expenses would remain unchanged following the start of their programs.
Robert Collins, vice president of financial aid, said many students in the United States graduate with tens of thousands of dollars in debt with little understanding of how they got there. At Western Governors, “responsible borrowing” is a mantra.
“We, as financial aid administrators, I think we can do a better job at setting the right expectations with the students,” Collins said.
In the first two years in which the university made recommendations about loan amounts to students, itemizing expenses, grant aid and loan eligibility to help them understand the full picture, students collectively borrowed 40% less than they did before the program launched in July of 2013. The average student went from taking $7,870 in loans to $4,717.
Fully 65% of students have accepted the financial aid office’s recommended loan amounts. Another 10% looked at the cost breakdown of WGU, realized the relatively low direct costs of the education and decided against loans altogether. And 3% accepted less than the recommended loan amount.
While average student debt at the national level continues to rise, Western Governors University graduates take out significantly less in loans than students at other institutions and the university boasts a downward trend on that metric. What’s more, fewer students are defaulting on their loans.
Collins considers it his responsibility to develop new programs addressing student debt.
“I think we have to take action,” Collins said. “We can’t just talk about it.”
Next on tap at WGU is a loan calculator that will let students input their outstanding principal loan balance from past education debt, add information about their WGU borrowing plan, and find out monthly payment estimates. From the beginning, students will understand how their loans will impact their finances.
Community college reform organization Achieving the Dream announced last week a batch of three-year, $300,000 grants for colleges to expand their financial education offerings. Bakersfield College in California, St. Petersburg College in Florida, Triton College in Illinois, Greenville Technical College in South Carolina and Alamo Colleges in Texas will offer activities such as financial coaching, financial planning and debt management workshops, and integrated financial literacy lessons into student success courses.
After two years, each college will report on its efforts to help other institutions improve their own offerings.
“When colleges proactively engage students in building financial skills and knowledge, they’re developing capabilities essential to their students’ college success,” said Karen Stout, president and CEO of Achieving the Dream, in a prepared statement about the grants.
The national student debt load has become a policy focus for state and federal legislators and scrutiny will only get harsher if institutions cannot reverse the worsening trends. The time to think about helping students be smarter with their borrowing is now.