College on Credit Has Kids Dropping Out.

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Author: McGlynn, Angela Provitera

The National Association of Student Financial Aid Administrators (NASFAA) and other researchers say student credit card debt and defaults are spiraling: 24% of students actually charge tuition on credit cards; 71% are charging books and food. With 10% of these students unable to make even minimum monthly payments, this is a leading cause of dropping out of college.

Campus Door, Inc., a private, for-profit company founded in 1995, provides alternative student loans to fill the gap when scholarships, grants, and government loans don't meet educational expenses. It claims to have helped tens of thousands of students pay for college in an atmosphere that makes financing higher education simpler and less intimidating than traditional loan routes. Repayment usually doesn't start until six months or a year after graduation.

One of the young women graduating with Cassell is Nicole Burkholder, who says she watched other students "freak out" each month when their credit card bill arrived. Burkholder used a Campus Door, Inc., private loan to fill the financial gap and avoided, or perhaps deferred, the stress her friends were experiencing.

She said, "I didn't have to worry about where to get money or if ! could afford books or if I could afford to live or eat food." Nicole's mother, Barbara, has an accounting background, and now sees all too well what can happen to people who fall into credit card debt.

Wanting her daughter to set off in the right direction, she advised Nicole how to apply for scholarships and financial aid from the college. But she needed money beyond that. The Campus Door private loan lets her concentrate on her studies now, and deal with her loans after she graduates and gets settled in a job.

Furthermore, average credit card interest is about 13.5%, which can rise quite a bit higher if card terms are not met. NASFAA research found college students more likely to go delinquent than the rest of the credit card-using population and very likely to drop out of college.

Private loan rates start around 5% and rise from there. Campus Door, Inc., vice president Jeff Ernst says private student loans run about half the interest rate of credit cards and can be used for all education expenses, not just tuition but books and room and board.

Kathy Shepard, financial aid director at Central Pennsylvania College, said her office recommends students apply for grants and scholarships, and she pushes them to meet application deadlines, always advising them to fill whatever financial gap is left by applying for a private loan rather than turning to credit cards.

She says some students don't understand the concept of credit cards. She thinks they see the plastic card as free money and don't understand the severe consequences of not paying it back. She says some students approach the financial aid office only after they have such bad credit that many options are cut off to them.

Less likely to use credit cards are Hispanic students, since their families are often averse to going into any kind of debt. What, then, is the financial aid picture for Hispanic students?

A recent report released by Excelencia in Education and the Institute for Higher Education Policy (IHEP) says that, on average, Hispanic students receive less. Although the percentage of Hispanic students receiving financial aid for college is the highest ever, they receive the lowest average federal aid awards of any racial or ethnic group in the country.

The report, How Latino Students Pay for College, found this disparity in the average amounts Hispanic students get has remained unchanged since 1995-96. Excelencia president Sarita Brown says, "Financial aid is critical for all students but more so for the Latino community, given the percentage that come from modest financial backgrounds."

"We know that Latino students are not entering and completing college at rates similar to other groups," said Jamie Merisotis, IHEP president: "Addressing economic disparities is one of the biggest steps we can take to improve success rates for the Hispanic community."

The report notes the following:

• Hispanic students rely heavily on federal aid, especially on federal grants, given that they are more likely to be the first in their families to attend college and also to have relatively low family incomes.
• In 2003-04, 80% of Hispanic students applied for some form of financial aid, and 63% received some aid.
• Hispanic students were more likely to receive federal aid than all groups except African-American students, but on average received the least money.
• Only 16% of Hispanic students received state aid.
• Only 17% received aid from institutions of higher education.

The report cites the need for further research into factors that might influence these findings, such as Hispanic student enrollment patterns. Hispanics were more likely to be enrolled part-time and also to be enrolled in the less expensive sector of higher education, public two-year colleges.

Henry Fernandez, executive director of scholarships at USA Funds and the study's sponsor, says, "The results of this study can help lay the groundwork for improving access for this rapidly growing student population." It's widely known that by 2050, Hispanics are expected to make up nearly 25% of the U.S. population. The problem is that Hispanic success in higher education has lagged far behind all other groups.

Here are the report's recommendations for improving Hispanic student access and success in college:

• The federal government should increase maximum awards for Pell grants to better align with increased college costs, and create an entitlement-based loan forgiveness program for students who study in areas of national need. It should develop explicit outreach strategies to target information on financial aid options to the Latino community.
• States should establish a predictable tuition and fee policy and develop an explicit information outreach strategy to Latino students and their families.
• Institutions of higher education should disaggregate institutional data to identify Latino progress, ensure course availability, and strengthen course planning.
• The K-12 sector should encourage mentoring by experienced parents and students, and offer courses on paying for college.

As noted earlier, Hispanic students are less likely to use credit cards because their families are often averse to going into any kind of debt. This reluctance to think in terms of credit makes outreach programs to the Hispanic community critical so that families can make informed decisions based on what is available to them in grants and non-loan aid.

High schools increasingly could play an important role in bridging the information gap for the lower economic-status families from which most "first in family" students come. Not knowing where to turn for financial help, what is available, and how to navigate the complicated financial aid system denies such students equal access to college.

Many educators and researchers are working diligently on issues of retention and academic success of students who are the first in their families to attend college, and rightfully so. However, we cannot ensure academic success until we address access to higher education.

Condensed from The Hispanic Outlook in Higher Education, 16 (January 30, 2006), 26-27. Published at 210 Route 4 East, Suite 310, Paramus, NJ 07652.

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By Angela Provitera McGlynn

Angela Provitera McGlynn, who taught psychology at Mercer County Community College in central New Jersey for 35 years, is currently a national workshop leader on teaching and diversity issues.