While the University has moved aggressively to make education affordable for the most financially needy students, some students with little or no demonstrated financial need increasingly bear the brunt of heavy debt to attend the University, mirroring a national trend of increased borrowing by middle class students.
Only 18 percent of the student body took out non-need-based loans this year, yet these loans comprise 67 percent of the $29 million borrowed by undergraduates and their families through Student Financial Services. These unsubsidized loans average $8,333 per student.
The University's financial assistance program is generous, meeting 100 percent of demonstrated financial need for both in-state and out-of-state students, something it has done for four years.
Its recently implemented Access U.Va. program meets the demonstrated need of students coming from families earning at or below 200% of the Federal poverty line entirely with grants. It currently caps the amount of need-based loans any student can take out over the course of his or her education at the University at $18,000.
Yet at the University, only 25 percent of students are able to demonstrate financial need, which might include loans, scholarships, awards, work-study and grants. The remaining 75 percent of the student body must fund its education independently through savings, borrowing, relatives and merit-based or outside scholarships.
Need is the difference between the cost of attending the University University and the family's expected contribution (EFC) as determined by federal guidelines based on the students Free Application for Federal Student Aid (FAFSA). This year the cost of attendance is $15,800 for in-state students and $31,700 for out-of-state students.
The University has adopted a model known in higher education circles as high-tuition, high-aid, which seeks to make the University accessible through financial aid to those who qualify rather than providing low tuition for all.
The policy was explained in a Board of Visitors resolution outlining Access U.Va. last winter.
"Whereas artificially restraining tuition below cost results in a financial subsidy for every student regardless of need," the resolution says, "the University seeks to ensure access and affordability to students who cannot afford the price of an education by providing financial aid rather than by artificially depressing tuition."
The distribution of debt reflects this policy. The most indebted cohort of the class of 2003 came from families with incomes ranging from $50,000 to $74,999. Of the 81 students whose debt equaled more than a quarter of the cost of a University degree, the average debt burden was $17,693 in need-based debt alone, data prepared for the Board of Visitors reveals.
If trends in non-need-based borrowing hold true to this group, these students likely borrowed more money in the form of non-need based private loans. Unfinished data from Student Financial Services that tracks financial aid activity by income range for this academic year cannot produce specific refined figures, yet it reveals that approximately two-thirds of non-need based borrowing occurs in the $75,000 to $200,000 income range.
"Look who is borrowing," Hubbard said. "Most of these are middle-income people."
Some middle-income students feel that the University is not sensitive to the consequences of this borrowing, exemplified by continually rising tuition.
Over the past five years, the total number of families taking out non-need-based loans has remained flat, yet the average amount of such loans has increased from $6,325 in the 2000-2001 academic year to $8,333 this academic year.
"Basically what's happening is that a lot of schools are saying that they have these great financial aid programs and then they raise tuition for the next six years," third-year College student Carmen Dee Comsti said, referring to a prospective six-year tuition plan the Board of Visitors unveiled at its most recent Board meeting that called for annual tuition increases of 10 percent for in-state students.
Comsti said that she has borrowed more than $40,000, half of that privately, and that it has been a struggle to pay rising tuition with her family's income of about $75,000 a year.
"The definition of need is antiquated, and you're not going to be able to afford an education unless you're really poor or you can pay for it out of pocket," Comsti said. "I live in Northern Virginia and it's very expensive there."
It is difficult for the University to reduce indebtedness because all federal aid relies on the federal formulas which Undergraduate Admissions Dean John A. Blackburn acknowledged are "far from generous."
Students such as Comsti are better able to borrow than lower income families because they are more familiar with debt and can receive lower interest rates on student loans by borrowing with a cosigner, Blackburn said.
"A student with a family income of $70,000 has more access to capital and more access to loans than a lower-income student," he added.
University officials are aware of middle-class borrowing and intend to work to make the University more affordable for all students, yet prioritized lower-income students as an institutional priority.
"There is a difference between making it easier and making it possible," Hubbard said. "Right now we're making it possible, later we'll focus on making it easier."
Only 8.6 percent of University students qualify for Pell Grants, the lowest of any flagship state university in America and ranked 44th among the nation's top 50 universities, the Mortenson Research Seminar on Public Policy Analysis of Opportunity for Post-Secondary Education study found.
Such students are more debt averse than middle-income students, Blackburn said, and need the assurance of a debt free education to entice them to even consider the University.
"I worry that there are some students who will look at our prices and say, 'I can't afford that,'" Blackburn said. "For families with bad credit, the thought of a loan, that would be over the top."
The University does its best to control tuition in light of its strong aid package, said Leonard Sandridge, University executive vice president and chief operating officer.
"There is good evidence that we provide a good quality product at a good value, but we don't take anything for granted," Sandridge said. "It's a personal priority of mine" to keep tuition as low as possible.
Such efforts were recognized by U.S. News and World Report, which ranked the University the 21st best value in America in its most recent college-rankings issue.
The University's predicament mirrors a national trend. The American Council for Education reports that from 1993 to 2000 annual student loan volume increased by 76 percent, and the percentage of people who borrowed rose from 49 to 65 percent during that same period. The average debt of a student attending a four-year public college averaged $17,100 Nellie Mae reported in their 2002 National Student Loan Survey.
To meet this growing appetite for student loans by the middle class, banks have aggressively rolled out private loan programs. Students are first advised to turn to need-based loans, Perkins and subsidized Stafford loans and then unsubsidized Stafford loans, Sallie Mae Spokesperson Martha Holler said. If they still need "gap" financing, to meet a portion of their remaining EFC, then they might consider turning to private loans.
"Of these options, private loans are the last resort," Holler said. Sallie Mae issues both private and federal loans.
The University's preferred lender is the Guaranteed Access to Education Loan (GATE) issued through Bank of America and processed through First Marblehead Corporation. Students can get a GATE loan even if they have no cosigner, an increasingly popular option.
"When we left Federal Direct Lending and went to Bank of America, we negotiated the best non-subsidized loan in the country," Hubbard said of the University's private loan offerings.
Any private loan has additional risk and cost not associated with a federal loan. Federal loans are guaranteed by the federal government, making them less risky for lenders and consequently less costly for students.
"It's dangerous for a student to enter into a private as opposed to a federally-backed loan," said Robert Shireman, the director of The Institute for College Access and Success and Student Loan Watch. "It is better for students to receive loans with lower interest rates where they are protected, such as federally backed loans."
Yet private loans are growing faster then nearly any other segment of borrowing. Private loans grew 25 percent last year while Stafford and PLUS (parent loans) grew by just 8 percent.
Though Stafford and PLUS loans have better terms, students often chose private loans for other reasons, said Paul Sheldon, managing director of the Education Finance Group for Citigroup, the firm's investment banking arm.
"The growth of the parent loan is slow relative to private loans," Sheldon said. "You would think that parents would borrow at PLUS loans rather than private because it's cheaper, but they are going to private loans. Parents seem to prefer that students be the obligator even if they cosign."
Middle class students are driving this growth, Sheldon added.
"The market for private loans is to middle America," he said. "Even if you're making $250,000, what most would consider a lot of money, $100,000 in tuition is a lot of money before taxes, so people need to turn to private loans."
The distribution of debt and the increased costs of higher education are always likely to be a sore subject, one where there are no clear winners and losers. Students seek out and are willing to borrow for a University education because they think it will offer them value in the long run.
"If there were no loans, would prices go down, probably, supply go down, yes," Curry School Dean David W. Breneman said. "But you'd be locking out people without the cash. It'd be a different world."
Read More
Shots fired reported at 100 block of Harmon Street, no injuries reported
By Thomas Baxter | 4 days agoThis is the first community alert of June.
Full Board discusses financial aid challenges, medical research and entrepreneurship
By Thomas Baxter | 6 days agoBoard members discussed the Pan-University Entrepreneurship Initiative, a project that aims to help develop more entrepreneurial ventures at the University.
Finance Committee approves 2024-25 operating budget and Major Capital Plan
By Zackary Holt | 6 days agoThe proposed 2024-25 fiscal year budget for the Academic Division includes a 6.8 percent increase in spending over the previous year.
