Student Debt

Students nationwide noticed recently that the price of college is increasing faster than inflation. Mines has attempted to keep costs down with a hiring freeze and pay freeze that are still partially in effect. However, as students know, this has not been enough to offset increasing costs and declining state support. To find out how students are coping, “The Oredigger” interviewed Jill Robertson, the head of financial aid at Mines.

Students are making up this difference with a mixture of their own money, family money, scholarships, and student loans. According to Robertson, about half of Mines graduates took out loans. Project Student Debt estimates the average debt for those who borrowed in the class of 2010 (Erik’s undergrad class) at about $28,000 [1]. This is in line with the numbers Robertson provided for 2011. Financial aid puts the average for federal loans at $23,000 and the average for those who took out private loans as well at $33,000. Robertson estimated that the 2011 average for borrowers is probably similar to the $28,000 figure for 2010 given by Project Student Debt.

Student borrowing is usually the difference between the financial resources the student can come up with and their expenses. To put it in a mass balance form more engineers are more familiar with.
Basic Costs + Lifestyle Costs = Student Resources + Loans
Student Resources = FAFSA[f(Parental Income)] + Scholarships[f(Parental Income, Merit)] + Parental Help + Student’s Outside Income + Work Study + Campus Jobs
Basic Costs = Tuition + Fees + Books + Health Insurance + Housing + Food + Transportation
Lifestyle Costs = Fancier Accommodations + luxuries + fancy Gadgets + Wants + Completely Unnecessary Stuff
Aside from the in state vs. out of state difference, the basic costs are similar for most students. This means that lifestyle costs and student resources are the primary drivers of student debt.

Student resources are significantly driven by the finances of a student’s family. According to Robertson, the Free Application for Federal Student Aid (FAFSA) calculates the estimated family contribution which determines the amount of need based aid for which a student may be eligible. Robertson said that a Mines aid package comes to an average of about $12,200 in student aid. Naturally, this amount scales with the family’s financial resources. This is need based aid, so it is expected that families will be able to pay more if their financial situation is better. However, many families do not provide this level of support for a variety of reasons. Some do it out of principle while others either cannot afford it or do not want to make the necessary sacrifices in lifestyle.

According to Robertson, this is where the preparedness of families makes a big difference. Those who did not put money aside for education and have enough that their FAFSA says they should be able to contribute are faced with a choice of making sacrifices or not supporting their student. Those with education funds are able to provide more support to students. At the high and low ends of the spectrum, this tends to matter less because the FAFSA either does not expect the family to be able to contribute much or the cost is a small enough portion of the parents income that it is not as big of a deal.

Outside scholarships are a significant boon to some student’s financial resources. Many incoming Mines students start with a few scholarships. However, there are many outside scholarships available after a student starts at Mines. Financial Aid passes information along about opportunities and some programs (such as McBride) send their students relevant scholarships. The problem for some is that outside scholarship applications tend to eat up quite a bit of time. For that reason, many students decide that it is easier to pass them up in favor of devoting the effort to academics. However, some students are very well rewarded for their efforts with $5,000+ scholarships.

The importance of outside jobs in supplementing a student’s resources should not be underestimated. A good internship in the right field or the right high paying blue collar job can make $10,000 or more during a summer. Off campus work during the semester can be profitable enough to cover or significantly reduce living costs. On campus work and work study pays well enough and can easily help students get valuable experience and connections. Even though $10,000 or even more a year will not cover even half the costs of a Mines education, it will supplement other sources and reduce the portion that must be financed with debt.

Student debt can be minimized by reducing lifestyle costs and increasing student resources. Robertson recommends reducing lifestyle costs by differentiating between wants and needs. Financing beyond the basic costs (tuition, fees, room and board, and books) is strongly discouraged. College is a temporary phase of a person’s life , so it is not a permanent reduction in one’s standard of living. Due to interest on debt, sacrifices in lifestyle now will leave a student with more money later. However, it is not uncommon for people to choose not to sacrifice their lifestyle as much as possible and borrow more to support it.

If a student must go into debt, Robertson strongly recommends using federal loans first. The subsidized loans that may be offered through the FAFSA are the best option because they do not start accruing interest until after graduation. After that, Robertson considers regular federal loans to be better than private loans because the federal programs are significantly more flexible in repayment terms.

Regarding these recommendations, the authors have a few experiences to share as well. Ramiro was able to avoid excessively expensive phone plans by using an iPod with wireless as his main phone. Erik still uses the old Cricket flip phone he got during his undergraduate time at Mines. Both of the authors take advantage of free food on campus and avoid the unnecessary expense of eating out as much as possible. It was Erik’s experience that a good blue collar summer job (commercial fishing) can make a huge difference in student resources. Finally, both the authors discovered that being a cheapskate goes a long way.

In the end, one might ask, “Is it worth borrowing for Mines?” No matter how much they complained about being miserable during their time at Mines, all of the authors’ friends and acquaintances who graduated Mines have either found a decent job in industry, gone on to graduate school, or joined the military. Most alumni the authors know probably beat the average Harvard starting pay of $54,000 [2]. According to the same ABC News article, the average Mines starting pay was $63,400 [2], almost $10,000 more than Harvard. In terms of longer term return on investment, Payscale’s 2012 net return on investment rankings places Mines as the top public school and number 14 overall (number 18 for out of state) [3]. Every school ahead of Mines on this list costs twice as much. These figures certainly indicate that taking out the necessary loans to complete a Mines education is a good idea for the average graduate.

As one would expect from these figures, Mines graduates are generally able to handle the debt they incur. According to Robertson, the nationwide default rate on student debt is 13.4% while the Mines default rate is only 2.7%. This indicates that most Mines students who borrow to make ends meet are able to deal with their debt.
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References
[1] Project Student Debt. (2013). Colorado [Online]. Available: http://projectonstudentdebt.org/state_by_state-view2011.php?area=co

[2] ABC News. (2012). 12 Colleges Whose Job Payoff is Better Than Harvard [Online]. Available: http://abcnews.go.com/Business/12-colleges-job-payoff-harvard/story?id=17273504

[3] PayScale. (2013). 2012 ROI Rankings: College Education Value Compared [Online]. Available: http://www.payscale.com/college-education-value