College graduates must learn basics of borrowing, repayment

Tuitions are rising, but the amounts of state and federal grants and scholarships aren’t, and that means more and more students are borrowing money to get through college.

How well they manage loans may be as critical to their future as what they do in the classroom.

Scholarships, grants and savings often don’t stretch far enough to cover what colleges refer to as the cost of attendance.

At Kent State University, for example, the cost of attendance is $15,670 a year for an undergraduate student. That total includes tuition, books, room and board, transportation and miscellaneous living expenses.

As at most colleges, Kent State sends incoming students an awards letter, which is based on the financial information contained in the Free Application for Federal Student Aid.

The letter details the scholarships, aid and grants and even work-study offers made to the student, along with details about what loans and amounts are available.

Kent State automatically awards loans to all students who qualify, according to a financial aid officer, although students can choose to reject the loan offers.

The loan paperwork is handled by the financial aid office, which is where students, and in some cases their parents too, will sign promissory notes when they borrow the money.

More than half the students attending the University of Akron and Kent State take out loans, according to financial aid officers at the two universities.

The average loan level for a student graduating from the University of Akron is $14,000, according to Doug McNutt, director of the school’s Office of Student Financial Aid and Employment. With students sometimes spreading their education out over several years, McNutt said, debt levels of $30,000 to $40,000 are not uncommon.

The past four years show a steady increase in Kent students’ borrowing, said Mark Evans, director of Kent State’s financial aid office, “and there’s no end in sight.”

“The scary thing to watch for is when students have maximized federal, state and institutional resources … and they’re still short money,” Evans said.

The average yearly burden for Kent State students borrowing from the main four loans – Perkins, Stafford subsidized and unsubsidized, and PLUS loans – stood at $5,520 in June, according to figures supplied by Evans. A year before, that total was $5,314.

Financial counseling for students receiving federally insured loans is required. Students get some basic counseling when they first enroll. When they graduate, a financial aid officer outlines repayment options.

“We try to give that type of information,” McNutt said, so students aren’t surprised when it comes time to pay. Brochures are handed out, and students are encouraged to run their loan amounts through a calculator to get an idea of how much repayment might cost.

Still, “most students seem to be pretty present-minded,” McNutt said, and the reality of repayment may not sink in.

Just ask LaTonya Myers of Akron, who may well be in her early 60s by the time she repays her student loans.

Her first semester at Kent State was debt-free, but at the beginning of 1990, she started borrowing. By the time she graduated in December 2000 with a master’s degree in business administration, her student loan debt was about $90,000.

In 2001, she was faced with repayment requests from five lenders. Myers made partial payments until she could consolidate her loans into one, with a 7.9 percent interest rate. In July, she made the first monthly payment of $690. She has 29 years and nine months to go.

Repaying her loans will cost Myers more than $250,000.

“Hey, I went to Kent State. I didn’t go to Harvard,” the Akron resident said of the total cost.

She acknowledges the impact of those student loans on her life.

She’s employed as the human resources manager for a Cleveland manufacturer, and plans to take a second job to make extra money.

Single and an apartment dweller, she has no plans to buy a home. “I already have a mortgage. These student loan payments,” she said.

She also acknowledges her financial responsibility, “I borrowed the money, and I have full intention and plans to pay it all back,” Myers said. “I just did not understand the accruing of interest” and how much the loans were ultimately going to cost her.

Courses in managing finances should be mandatory for college students, Myers said.

“I want other people to know about the dangers of student loans and not managing that process and the borrowing because they may end up in a situation where they have a good job with a good income but they’re struggling to make their payments and they’re sacrificing other things like buying a home,” Myers said.