How SALT teaches students about college debt before problems arise

Andrew Brown, a Howard University senior, had a pretty enticing display of free swag, including knapsacks, pens, cups and magnets, all emblazoned with one word: SALT.

"Hey, have you heard of SALT?" Brown asked a pair of students making a beeline for the pens during the hectic lunch hour at the Blackburn Center. Freshman Joshua Baldwin replied: "Is that that financial thing?"

Nodding his head, Brown explained that SALT is a free program offering all sorts of information about budgeting, grants, scholarships and repaying student loans. "Do you have any student loans?" Brown asked, pulling up SALT's website on his iPhone.

Baldwin smiled ruefully: "Yeah, much more than I'd like. I could use some help."

Tens of thousands of students like Baldwin are taking out large loans to pay for college without much guidance on how to pay them back. With one in four borrowers falling behind on student loan payments, colleges are turning to programs like SALT to intervene.

The nation's colleges and universities are under increasing pressure as lawmakers demand they be held accountable for students who struggle to repay their loans. Sometimes, that means colleges are forced to pay a portion of the debt. New data from the Education Department is bringing the problem into greater focus, revealing that more than a third of borrowers had not paid any of the principal on their federal loans within three years of leaving school.

Experts say stagnant wages and underemployment may be contributing to borrowers not making progress on repaying their loans, but colleges are hoping that the kind of counseling SALT and similar programs provide can make a difference by intervening before students enter the working world.

Named after one of the earliest forms of currency - it is not an acronym - SALT is sponsored by American Student Assistance, a Boston-based nonprofit that used to guarantee student loans. When President Obama ended bank-based student lending in 2010, the company, which insured those loans against default, shifted its focus toward counseling.

"If you stop students from ever becoming delinquent, then default is irrelevant," said Paul Combe, president of ASA. "That's been our focus all along, preventing delinquencies."

Companies the government has hired to collect and apply payments, known as student loan servicers, are supposed to help people select the best repayment plan for them. But critics say servicers hastily place borrowers into plans that require the servicer to do the least amount of paperwork.

"The incentive structure for servicers is to process payments. They are not customer-service oriented ... and there is no incentive for that to happen," Combe said. "To do the kind of counseling students really need, it takes time. And it would cost more money to give that kind of quality service."

SALT, which has an annual budget of roughly $60 million, is funded through an endowment ASA established and sponsorships from more than 300 colleges and universities that use the program.

College financial aid offices usually have student workers - like Brown at Howard - serve as SALT ambassadors to get other students to sign up for the program.

For Brown, learning about financial management was such an eye-opener that he switched his major from computer science to economics. He gives presentations at dorms, solicits students at the cafeteria and advertises through the financial aid office's Twitter and Facebook accounts.

Heeding some of the advice he's learned from SALT, Brown already has started paying the interest on his $15,000 in student loans.

"No one is really thinking about debt while they are studying for midterms," he said. "But they're always surprised to learn that missed or late payments can damage their credit, and that can make it hard to buy a car or a house."

Brown walks students through SALT's website, where they can use a repayment calculator to figure out what percentage of their income will need to go toward their loans for them to keep up. Students also can learn about credit scores, compare the cost of living in different cities and find jobs.

The 135 counselors at SALT are available through live chats online and by phone seven days a week. Counselors send monthly newsletters featuring tips on money management to more than a million students and alumni.

Myrone Morgan, a SALT counselor for six years, said he fields an average of 50 calls a day from students and graduates. They have all sorts of misconceptions about their loans, he said.

"Sometimes people just need someone to explain whether they are eligible for new repayment plans or debt forgiveness," he said. "A lot of times we're the go-between with their servicers when they fall behind on payments."

At Howard, students are acutely aware of, and often worried about, repaying their loans, said Derek Kindle, the school's executive director of student financial services. He estimates that 60 percent of the university's undergraduates and 40 percent of graduate students borrow to pay for school.

In early 2012, Howard began researching financial literacy programs in anticipation of the government changing the way federal student loan defaults were measured. Instead of looking at the number of people failing to make payments within two years of leaving school, Congress extended the span to three years for a more complete picture of the problem.

Though Howard's default rate at the time was about 10 percent - far below the 30 percent mark that puts schools at risk of losing eligibility for federal financial aid - the school still wanted to bring down its rate.

What made SALT stand out among the seven programs Kindle looked at was the full-throated approach to financial literacy and its use of peer counselors.

"Sending emails to students from the bursar's office doesn't capture their attention the same way another student does," Kindle said. "You can see how engaged they are even in just a quick interaction, as opposed to having an administrator at a table, which they'd probably just walk past."

He credits the peer-to-peer engagement with getting 27 percent of students who are solicited to sign up for SALT, a rate that surpasses the 5 percent achieved in prior initiatives. All told, 40 percent of students at Howard are enrolled in SALT.

Kindle said graduating seniors are the most active participants. Howard undergrads typically come out of school with $27,000 in debt, according to the College Scorecard. Only 59 percent of those students are paying down their debt, less than the 67 percent national average. The latest data from the U.S. Education Department placed Howard's default rate at 7.8 percent, below the national 11.8 percent rate.

Nearly two thirds of Howard's students are eligible for Pell grants, a form of financial aid for needy college students.

"If you're talking about first-generation college students or a student coming from a background where they are living at or below poverty, most likely there is not a lot of financial literacy going on at home," Kindle said. "SALT is a program we think will prepare them for post-graduation life."