Mounting student loan debt vexing for Indiana

Escalating student-loan debt is fast becoming a serious problem for Indiana and could present a huge obstacle for state leaders who want to double the percentage of Hoosiers with college degrees.

The average bachelor’s degree recipient in Indiana graduates with $27,000 in student loans, ranking the state eighth-highest in the nation. That’s not good, especially since Indiana wages are below the national average.

The combination of high student-loan debt and subpar pay presents an interesting dilemma for state leaders who also are wrangling with a default rate that has grown 35 percent in the past three years, figures from the Indiana Commission for Higher Education show.

“It’s a significant concern, because at the same time you’re having this financial reality, we’re telling everybody they need post-secondary credentials,” said Teresa Lubbers, the state’s higher education commissioner.

Adding to the conundrum is that demand for several occupations has weakened as the market becomes oversaturated, said Mike Hicks, director of the Center for Business and Economic Research at Ball State University.

Colleges today are churning out as many mechanical engineers and accountants as they did in 1970, which is unfortunate given the need, Hicks said. But the number of degrees in psychology, arts and the humanities, for instance, has doubled since 1990, he said.

“There’s been an explosion in majors for which there’s not any viable post-graduate employment opportunities,” Hicks said. “So it shouldn’t be surprising that those students face the most difficulty repaying their loans and are crying the loudest about the circumstances.”

Nationally, the number of borrowers defaulting on federal student loans has jumped sharply, from 7 percent in 2008 to 8.8 percent in 2010, according to figures from the U.S. Department of Education.

Driving the overall rise was an especially sharp increase among students who borrow from the government to attend for-profit colleges.

Of the approximately 1 million student borrowers at for-profit schools whose first payments came due in the year starting Oct. 1, 2008—at the peak of the financial crisis—15 percent were already at least 270 days behind in their payments two years later. That was an increase from 11.6 percent among those whose first payments came due the previous year.

The for-profit Harrison College in Indianapolis is somewhat of an anomaly regarding default rates. Its rate is 7.8 percent, about half the 15 percent for for-profit colleges nationally.

Dennis Trinkle, Harrison’s provost and chief academic officer, said the college strives to provide students financial counseling to help them manage their money and to not borrow beyond their means.

He thinks the struggling economy is contributing to higher default rates that will subside once a rebound takes hold.

“It’s being a little bit overblown right now because a fair bit of what’s going on with the default rates is the economy and the length of the recession,” he said. “My hope is that we’re not in a new normal.”

The state is attempting to tackle the problem of rising student loan debt by educating students about the financial aspects of college before they enroll.

One such program is Learn More Indiana, which can help students analyze the cost of college by comparing tuition at different institutions and providing financial aid options to get an accurate cost.

Learn More Indiana also suggests students take 15 credit hours each semester to graduate in four years and lessen the amount of debt they’ll accumulate during their college years.

Students could reduce their costs further if colleges would adopt balanced calendars to help them graduate in less than four years, the commission says.

Graduating with thousands of dollars of debt is bad enough at a time many are entering the work force with poor job prospects. But dropping out with a pile of loans is even worse, Lubbers said.

“They have the debt and don’t have the credentials,” she said. “From every front, it’s a loss-loss instead of a win-win.”

Perhaps unbeknownst to many, the state doles out hundreds of millions of dollars in grants to help students, including nontraditional types, pay for tuition.

Formed in 1965, the Student Assistance Commission of Indiana will release state grant money that this school year will total $270 million, up from $250 million the past budget cycle.

Yet, individual grant amounts to students are shrinking because more Hoosiers are attending college, particularly those who have lost jobs or are returning to school to improve their skills, at a time when tuition continues to skyrocket.

Fees at America’s public colleges rose more than 8 percent in 2011, more than double the inflation rate of 3.6 percent, according to a report by the not-for-profit College Board in New York.

Increasing college costs coupled with climbing loan defaults has some economists questioning whether the student loan market will be the next bubble to burst.

“We’re very interested in seeing growth in college degrees because higher education tends to be associated with higher earnings,” Hicks said. “But increasingly, that’s not the case.”•