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Sticker Shock or Culture Shock? | Borrower Loan Limits
Guide to Developing a Default-Management Plan

Sticker Shock or Culture Shock? Assessing Access Barriers to the Retention of Non-Traditional Student

“I had to quit school because I didn’t get enough financial aid” is a common retort I would hear from students when I used to wear my financial aid administrator’s hat. Often upon further inquiry or probing however, the truth was often some other underlying personal matter--family issues, boyfriend or girl friend problems or some other issue not directly tied to affordability.  Claiming “financial aid” or lack thereof as being the impetus for leaving school is a much cleaner and acceptable excuse than some messy personal matter.

 “Sticker Shock” or the rapidly increasing cost of higher education is indeed a barrier to access for students.  However I would like to suggest that a phenomenon called “Culture Shock” shares some culpability for retention problems.  Although I believe all students experience some form of culture shock in college, it might be more profound for first generation or non-traditional students.  Whether we like to recognize it or not, institutions of higher education have a distinct culture.  The ivory tower culture however is becoming more and more alien to the demographic it is trying to recruit and retain.

Kalvero Oberg in the late 1950’s was one of the first persons to coin the term “culture shock.”  He states that culture shock could be called an “occupational disease of people who have been suddenly transplanted abroad.”  The shock comes when all the subconscious cues such as facial gestures, words, and social intercourse norms one grows up with are no longer the norm in one’s new environment. Simply put, Oberg states that the person becomes “like a fish out of water.”  To take his analogy further, I would like to suggest that the non-traditional student entering our campuses are in fact the first ones in their families, or neighborhoods to jump out of the pond.  Students of a similar ethnic make-up sitting together in the cafeteria, or living in a particular dorm, are seeking an environmental oasis in response to world of unfamiliar cultural cues.

What does this have to do with financial aid?  Plenty.   What other office touches anywhere from 35% to 95% of it students and does so in such an in depth (perhaps invasive) nature?  What other office delves into everything from divorce, death to income and is even required in some cases document it? However it isn’t simply the high touch nature of financial aid but timing that gives this office an unique responsibility to recognize potential cases of culture shock. Most often the second stage of culture shock (or flight response) comes in or about the third month of being immersed in the new culture.  Suspicion and anger toward the host culture is at its height, and the proclivity to long to return to one’s “normal” environment reaches its peak.  This peak at traditional campuses coincides with the time period that is between post “add-drop” for classes and the mailing of bills for second semester. 

I have often stated when it comes to envisaging the new demographic of our student body, the financial office is the admissions office.  Financial aid administrators  “admit” freshmen to become sophomores, sophomores to become juniors, junior to become seniors.  Financial aid administrators wear many hats, including a retention hat.  Having a better understanding of the effects of culture shock falls into the retention role and clearly more study needs to be done on the subject.

I remember one time I was counseling a young women from Latin America.  She stated that she was leaving school due to financial aid problems. Well after fixing her “financial aid” problem she lamented that she was still going home.  Among the score disappointments that overwhelmed her was the fact that she “couldn’t think” because it was too cold.  Although financial aid administrators will never be able to do anything about the weather, we can make sure that financial aid issues, coupled with culture shock, don’t make the perfect storm to wash away our new and most precarious population.

Submitted By Michael A. O’Grady, Bank of America

Borrower Loan Limits: Key Reauthorization Topic

Should federal borrowing limits for students who attend the nation’s colleges, universities and vocational schools be lifted or remain at the levels last set by Congress in 1992? The subject has captured the attention of many financial student aid professionals as college costs have increased, and is being discussed even more ardently this year as reauthorization of the Higher Education Act looms.

To frame the debate, here are some of the arguments on both sides of the issue.

Pros:

• Federal loan limits have not been increased since 1992 and have failed to keep pace with rising college costs.
• Federal loan programs offer students favorable terms and conditions and should be increased to counterbalance borrowing through private, non-federally insured loans.
• Federal loan programs reduce reliance on credit cards and private loans for middle- and low-income families.  
• Federal loan programs offer students an opportunity to work less and concentrate on their higher education goals.
• Higher loan limits allow students to continue accessing all types of institutions, both private and public, and a variety of different types of programs.

Cons:

• Increased loan limits could encourage colleges to raise tuition. 
• Some students are already borrowing excessively and may not realize the salaries they are expecting upon graduation.
• The priority for Congress should be increases in Pell Grant funding and other non-repayable sources of aid over raising loan limits.
• Debt is already rising, especially among at-risk students. 
• Increases in loan limits may exacerbate default management problems for some students and educational institutions.

Where do these discussion points lead in this debate? A number of different options, outside of leaving the current limits intact, have been proposed.

The National Association of Student Financial Aid Administrators (NASFAA) in 2002 proposed increasing undergraduate loan limits to $7,000 annually and graduate loan limits to $10,000. Under this proposal, undergraduate students would have a uniform $7,000 loan limit instead of the graduated limits (from $2,625 to $5,500) in place right now. In contrast, the American Association of Community Colleges and some student groups are advocating for no change in the current limits.

Flexibility in imposing the annual loan limits is one option that has been proposed by other groups. This would allow students to borrow more than the current annual loan limits in their first two years, but not allow them to borrow more than the current aggregate limit over their college career. 

The American Council on Education (ACE), the umbrella advocacy group for higher education associations, has asked Congress for an adjustment in the loan limits to recognize changes in the cost of living, which would increase the current aggregate limit from $23,000 to $30,000 and allow first-year students to borrow up to $4,000.  But in a nod to the community college and state college associations, the ACE also recommends the exploration of loan limits that are related to students’ “unmet financial need” after institutional costs and student aid have been considered. Some community colleges in the west have called for allowing each college to set its own lower loan limit if necessary as a way of accommodating the need to higher loan limits in some other institutions.  Most advocates also agree that if loan limits are increased, repayment plans must be more flexible and offer borrowers the opportunity to reduce their monthly payment.

While these issues will be debated by members of Congress in the upcoming reauthorization, one thing is abundantly clear – loan counseling and good repayment experiences are critical for borrowers and essential to default prevention.  It remains to be seen whether loan limit changes will add to the task of making sure that borrowers understand and fulfill their loan obligations and simultaneously realize their educational aspirations.

By Sandy Ninemire, EdFund Governmental Relations

Guide to Developing a Default-Management Plan

Default prevention and debt management must be a campus-wide concern. The program should have the support of the president or chancellor and should include participation by relevant senior executive officials, faculty, staff and students.

USA Funds^, online “Best Practices in Debt Management Manual” provides a guide for developing a plan for managing campus default rates. According to the manual, a school that successfully implements a default-management plan does the following:

1. Uses its resources efficiently.
2. Provides enhanced initial and exit counseling.
3. Works to reduce the number of dropouts.
4. Works to ensure that its borrowers can repay their student loans.
5. Keeps in touch with its borrowers.

In addition to the goals listed above, a comprehensive default-management plan should encompass some or all of the following items:

1. Analysis of your student population.
2. Hiring and training of campus staff.
3. Evaluation of the current default-management plan.
4. Aid-packaging philosophy.
5. Education of borrowers.
6. Networking and development of external relationships.
7. Effective utilization of reports.
8. Development of a resource library.

A school that is required to use a default-management plan to participate in the federal Title IV student-aid programs should review U.S. Department of Education guidance regarding development of a default-management plan.

Submitted by Richard Burt, Account Executive, USA Funds Services