New efforts to teach students about loans

With federal student loan default rates the highest they have been in a decade, and its own figures above the national average, leaders at Elgin Community College knew an intervention was needed.

While the federal government requires all students receiving a loan to complete an online entrance counseling session, ECC has introduced its own in-person financial counseling.

Other suburban community colleges are set to follow suit.

Amy Perrin, ECC's director of financial aid and scholarships, said the program walks students through the loan process from application to repayment.

“Some students don't understand that you have to pay back a loan,” Perrin said. “We have a high number of first-generation students who don't understand the expectations.”

The 30-minute sessions require students to meet with a financial aid adviser. Students are asked to create a budget detailing where they spend their money and what they expect to make once they graduate.

“We press students on only taking out what they need,” Perrin said. “Financial aid is for educational purposes only, not a vacation. Students are not understanding how much they will make when they get out of school.”

There are consequences that could haunt students for years, including the inability to borrow money for a house or car, wage garnishments or even difficulty gaining employment.

Stacy Maldonado, a 42-year-old paralegal student from Yorkville, said the process was simple.

“I have taken out loans before so they went over what my total would be, which was nice because I had not seen that before,” said Maldonado, who borrowed for books and tuition. “It puts it into perspective for kids who might not know what they are getting into or how much they are taking out.”

So far, ECC is alone in its requirements. Harper College in Palatine only requires students to complete the federal survey online at studentloans.gov. College of Lake County in Grayslake requires students to complete a financial aid worksheet.

In the spring, College of DuPage in Glen Ellyn will begin asking students to complete an online self assessment to gauge their financial literacy, said Earl Dowling, associate vice present of enrollment management.

“We are doing this because as family units ... we don't spend a lot of time talking about balancing a checkbook or credit cards and all of the fine print,” Dowling said. “We thought it was the right thing to do.”

Recent data released by the U.S. Department of Education show default rates — which measure the extent that former students are unable to repay loans — rose to 8.8 percent in 2009, from 7.0 percent in 2008. That's the highest the national average has been in a decade.

The latest figures are based on borrowers whose first loan repayments came due between Oct. 1, 2008, and Sept. 30, 2009, and who defaulted before Sept. 30, 2010.

“The economy and the unemployment rate have to have a huge part in this,” Perrin said. “If students don't have a job, they struggle to repay loans.”

ECC ranks ninth in terms of lowest default rates out of the 52 public and private community colleges in Illinois, according to data from the U.S. Department of Education.

Oakton Community College, which has campuses in Des Plaines and Skokie, also ranked in the top 10. College of DuPage ranked 30th on the survey with a default rate of 13.9 percent.

Although ECC's rate dipped based on data from 2009 — from 10.4 percent to 9.8 percent — changes to federal regulations will put more pressure on institutions to keep default rates down, Perrin said.

The U.S. Department of Education will move to a three-year period to measure default rates to capture a more accurate snapshot. The broader window could lead to even higher default rates, Perrin said.

“We saw this coming down the pike and thought we have got to do something,” Perrin said. “If defaults get to a certain point, colleges are basically put on probation and may get their loan program taken away. We certainly want to get on it now. We don't want to wait until we have to make a hard decision on whether to even offer loans.”