The other student loan problem: too little debt

By Justin Pope

Associated Press

Published: Sunday, Nov. 27 2011 3:26 p.m. MST

The more selective school may have a higher price tag, and you may expect it will be harder. But in fact, even comparably qualified students are more likely to graduate from the more selective school, probably because such schools generally offer more financial aid and academic help.

Student debt aversion is most pronounced among Hispanics and Asians, who borrow at lower rates than whites despite having higher financial need. And it appears to have the greatest consequences for Hispanics and blacks.

Fifty-one percent of blacks who had financial need but decided not to borrow had left school within three years without a degree, compared to 39 percent of those who borrowed, the study by Excelencia and IHEP found. For Hispanics, 41 percent of non-borrowers had left, compared to 32 percent who borrowed.

In Hispanic immigrant populations, "aversion to borrowing stems from a lack of a banking relationship of any sort," said Santiago, who has studied debt aversion in the states along the Mexican border. "They tend to live in a cash economy, and (have) a very stringent determination to live within your means."

For Hispanics, she says, the issue isn't new. But more broadly, a new generation is arriving on campus whose financial education was forged almost entirely during the financial crisis and the wretched economy of the last four years.

"I think the foreclosure (crisis) is definitely something that is on my mind," said Yeh. He says he would borrow if it became absolutely necessary. He's doing OK academically, but acknowledges he used to have a few weeks to work on a paper; since upping his course load he typically bangs it out the day before. He's so busy he doesn't have time to cook and eats out regularly, even though that's more expensive.

At California community colleges, students don't usually need to borrow to pay tuition. But the decision affects how much they work outside class — and that affects their path through college.

Isaac Romero, 22, a third-year student at Long Beach City College, works a nearly 40-hour-per-week job with a workforce staffing company that has him on assignment at City Hall. He goes straight from there to class from roughly 4 until 9:40. Two bus rides later he gets home, often around midnight. Weekends are for homework.

He hopes to transfer next year, earn a bachelor's degree and then attend graduate school. Someday he wants to teach at LBCC. He figures he'll eventually have to borrow but wants to keep his debt as low as possible. So he ignores the loan solicitations that flood his mailbox.

"Life would be a little more comfortable if I did take some loans," admits Romero. "I might have a car. I wouldn't have to take the bus for two hours." But, he remembers his father — both parents are now deceased — agonizing over bills. Several friends have had cars repossessed.

"I just don't want to go through that," he said.

Eloy Oakley, the president of LBCC, says he understands the source of debt aversion.

"The predatory lending we've had from private lenders, credit card companies, has scared students," Oakley said. "I think they have a conception that all debt is bad. They're concerned about that and rightfully so."

But it's so important to move students through community college expeditiously, he says, that he's concluded debt aversion is a more dangerous problem overall than student debt.

"The longer they're in school, the more opportunity they have to be distracted by life events, jobs, families, situations that change in their own families," says Oakley, whose student body is 41 percent Hispanic and 16 percent Asian. "If we can minimize those exit points and shorten their time to degree, that's much more advantageous to them."

The solution is helping students better understand the complexities of financial aid: the difference between government and private loans, how much debt is manageable, the likely returns on various degrees and majors.

"It's hard to get a nuanced message to students so they can act prudently and get their education," Santiago said. "We have to show there's a level of financial aid and loan amount that's reasonable."

Online: http://bit.ly/u70NzV

Justin Pope covers higher education for The Associated Press. You can reach him at twitter.com/jnn_pope97

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