At about 6:40 a.m. on May 8, 2012, the amount of student loan debt in the United States surpassed $1 trillion. Today, that number quickly approaches $1.3 trillion and now exceeds the country’s total credit card debt or auto loans. In Indiana, average loan debt per student was $28,466 in 2013. This number hovered slightly above the national average of $27,850.
The staggering rise in student loan borrowing over the past few years should alarm not only Hoosier students and their families, but every taxpayer because the taxpayers are ultimately on the hook for these loans. More than 80 percent of all student loan debt is taken out through the federal government’s student loan program. These loans are non-dischargeable in bankruptcy, and with default rates rising to the tune of nearly 14 percent within three years of entering repayment, taxpayers should be concerned.
In Indiana, we can’t change the federal government’s student loan program, but we can challenge higher education institutions in our state to put their students in an informed position when making these life-altering decisions. Because the cost of actual attendance may not necessarily reflect the borrowing needs of a given student, student borrowers often borrow up to the maximum amount allowed, even if they don’t need it. Some have termed this the "lifestyle gap," meaning that the excess amounts borrowed may go to fund the lifestyle of the student rather than just their education.
About two years ago, Indiana University started financial literacy measures designed to inform students of the potential escalating costs and long-term consequences of their borrowing so that the student could gauge the future debt burden with their given major, career plan or area of focus. At IU, a letter was sent to prospective borrowers translating the amounts borrowed to their likely monthly payment and total payoff after the life of the loan. That information caused a significant drop in student borrowing. Federal undergraduate loan disbursements dropped 11 percent – $31 million – in one year. The drop compared to a 2 percent drop in federal undergraduate borrowing nationally. In other words, students and their families, when armed with information translating their student loans to real life, dramatically and voluntarily began to close the "lifestyle gap."
This legislative session I authored House Bill 1042, which has passed the House unanimously. The bill is designed to replicate IU’s efforts and mandate such information to students at every institution that accepts student financial aid from the state of Indiana. There are more than 80 public, private and private for-profit higher education campuses in Indiana that will now be required to put their students in a more informed position when taking out student loans. Upon receiving this information, the choice is ultimately up to the student and his or her family, but if IU’s example is evidence of what may come, I’m hopeful that Hoosiers will see a drop of tens of millions of dollars in student loan borrowing over the next few years.