Default Prevention. Student Focus Group on Debt Management

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1 Default Prevention Student Focus Group on Debt Management

2 Background and Purpose For more than 15 years, TG has worked with its advisory committee, the Council for Student Financial Success in Higher Education, to support initiatives that promote responsible student loan borrowing and wise debt management. TG and its advisory committee have produced numerous default prevention resources for students as well as practitioners in higher education. TG and the Council recognize the critical role that student input plays in the effectiveness of resources. To gather student perspectives pertaining to education financing and debt management and to ensure that TG continues to produce relevant, timely, and content-rich resources, TG conducted student focus groups in Texas. Focus group feedback serves to guide default prevention efforts for TG and the Council and to ensure that corporate and Council priorities align with student needs. TIMEFRAME AND LOCATION From July through August 2013, TG conducted six student focus groups at community colleges and four-year public and private institutions in Austin, Houston, and the Rio Grande Valley. In an effort to gather perspectives from geographically diverse regions and distinct institutional sectors, TG selected institutions from the south, central, and east regions of the state, including: Three community colleges; and Three four-year universities, comprised of one private university, one Hispanic-serving institution (HSI), and one Historically Black College and University (HBCU). STUDENT CRITERIA Students participating in the focus groups met the following criteria. They: Were enrolled in college; FOCUS GROUP PROCESS TG staff gathered feedback from a total of 37 enrolled students with student loans: 19 from two four-year public universities; 12 from three public community colleges; and six from a four-year private university. These students shared perspectives in a focus group lasting two hours and received $25 for their time. Students completed a pre-session survey that gathered basic information on major, year in school, age, hours worked during school, student debt level, and expected income after graduation. Here is a sample of relevant information gathered: Median age of students was 26 (age range from 18 to 47); Most students lived off campus; and One out of four participants was first in his or her family to go to college (8 out of 32 responses). Had received financial aid, including a student loan; and Were not employed in the financial aid office of the college campus. Focus group feedback serves to guide default prevention efforts for TG and the Council and to ensure that corporate and Council priorities align with student needs. 2 Student Focus Group on Debt Management

3 Focus Group Findings Focus group discussion on debt management had three objectives: Gauge student perceptions of student loans; Gather attitudes toward money management; and Find out how students prefer to receive information about their loans. The following sections provide a summary of findings, which are based only on the opinions of the interviewed participants. PERCEPTIONS OF STUDENT LOANS Borrowing and repayment Generally, students across all institution types reported a sense of optimism about their future, but cited some uncertainty about student loan repayment. A number of students were worried that they wouldn t be able to afford loan payments. While most students viewed their student loans as a debt that must be repaid, many students viewed their student loans as something positive, noting that loans make school possible. Generally, students across all institution types reported a sense of optimism about their future, but cited some uncertainty about student loan repayment. When asked why they got a student loan, students typically responded in one of three ways: 1) Grant aid was not enough to cover all expenses; 2) Loans were necessary to cover books, living expenses, and additional college costs; or 3) Loans were necessary so they could work less. Students from four-year universities also reported that they needed to take out loans, because their parents are not able to cover all of their costs, or that their parents cut them off because they didn t make good grades. One student said that he needed to take out a loan because he had become ineligible for a Pell grant. Students who received both a Pell grant and a TEXAS grant said that these grants are not enough to cover college costs. One student commented that every time grant aid increases, tuition increases. Students who received both a Pell grant and a TEXAS grant said that these grants are not enough to cover college costs. One student commented that every time grant aid increases, tuition increases. Even though students reported the need for loans so they could work less, more than three-quarters of participants reported that they currently work, with one-third working 20 hours or more per week. Student loan counseling All participants generally recall taking some type of loan counseling session. Most reported completing a session online, while a few remember taking an in-person counseling session. When questioned about what they learned in those sessions, responses varied. While most students recalled learning basic information about their loan, some participants in each session reported that they learned nothing. Some said that they remember reading a great deal of information, while several remember clicking through the module and thinking the information was common sense. Student Focus Group on Debt Management 3

4 Despite the variation in what students reported learning, participants said that they understood the consequences of not paying back their loan, including possible wage garnishment, a damaged credit score, difficulty making other big purchases such as a house or a car, and potential ineligibility for accessing a student loan in the future. When asked where they turn for questions about their loans, most students indicated their school s financial aid office. A few said they go online to find answers or contact their loan servicer. However, some students reported having trouble getting answers from their loan servicer. Many students had questions about repayment. They did not know where to send payments or how much to pay each month. Some students, especially those planning on graduate schools, had questions about deferment. Two students had questions about the loan interest rate, citing recent media attention about interest rate increases for federal student loans. ATTITUDES TOWARD MONEY MANAGEMENT How students manage their money varied within each group. Overall, age and type of institution did not play a factor in whether a student preferred to manage his or her money online, with a smartphone, or in person. Most students reported using a smartphone app or going online to check account balances and pay bills. However, participants in five of the schools reported that they prefer to pay their bills in person, with several students reporting a distrust of banks and online banking systems. Some said they liked to pay in person because then they knew payment was complete. Others reported removing the auto-draft feature from some of their bills, so they could have more of a sense of control over their account. What students spend their money on varied slightly between institution types, but all groups reported transportation and food as two of their major expenses. Students at both public and private four-year institutions and traditional-age students at public, two- and fouryear institutions were more likely to report spending their money on entertainment, travel, or clothes. Nontraditional-age students at community colleges were less likely to spend money on these items. Several students across all institution types reported children as a major expense. Although TG did not survey students on whether they had family responsibilities, 27 percent of student participants indicated that they have children, with several students indicating that they receive child support or are single parents. Most students said that they learned to manage their finances from a parent or someone they know well, such as a boyfriend or close relative. Some students saw their parents money management behavior in negative terms. For example, one student reported that his father made a great deal of money but spent it all. Another student reported that he did the opposite of his parents, who did not manage money well. One student said, My parents owe a lot, so I know I don t want to be like that. I try to do the exact opposite. Only three students reported taking a money management-related class in elementary or high school. One student said that the high school course was not helpful, because he didn t have any money at the time and couldn t practice what he learned. What students spend their money on varied slightly between institution types, but all groups reported transportation and food as two of their major expenses. 4 Student Focus Group on Debt Management

5 PREFERRED DELIVERY METHODS FOR STUDENT LOAN INFORMATION TG asked a series of questions related to delivering loan information, including how students prefer to receive information and whether campus financial aid events would interest them. Students across all institutions reported that they refer to their school s financial aid office for questions on loans or other financial aid matters. Students also visited specific websites, searched for help via Google, or contacted their loan servicer. Overwhelmingly, students reported that they prefer to receive information about their loan or financial aid in a combination of ways, including in person and online, either through a website or by . Students reported that a concise with links to other, dependable websites is an effective way of communicating loan information. Students across all groups reported that they prefer to ask questions in person at the financial aid office, while others said they prefer to use or a live chat online tool, if available. Several students also reported that YouTube videos are an effective way to provide information about loans, loan counseling, or other information related to financial aid. Students noted that how they preferred to receive information depended on the type of information. For instance, personal information about their loan would be acceptable via or a letter. However, they would like general information about financial aid to be delivered in person or via a website that gives them the option to ask questions (e.g., live chat, seminars). Overwhelmingly, students reported that they prefer to receive information about their loan or financial aid in a combination of ways, including in person and online, either through a website or by . When asked what motivates them to attend an event, students reported that promotion of the event, incentives such as food offerings, the timing of the event, and the topic are all important factors. Several students indicated that they would be most interested in attending events that describe changes in financial aid and student loans, especially changes that could affect them. Students provided detailed feedback on the type of promotion that works, including Facebook, Instagram, social media invitations, campus alerts through text message, and well-designed posters or flyers around campus. When asked what motivates them to attend an event, students reported that promotion of the event, incentives such as food offerings, the timing of the event, and the topic are all important factors. Student Focus Group on Debt Management 5

6 MAJOR THEMES BY INSTITUTION TYPE Community colleges Participant profile On average, community college students reported a lower level of student loan debt in comparison to students at four-year institutions. Total number of participants 12 Median age 32 Outstanding student loan debt $15,000 or less (9 students reporting) Comment summary Community college participants generally had a sense of optimism about their future, noting that paying off their debt will bring greater stability and a sense of satisfaction to their life. Several community college students reported that they do not expect to be rich, but will be able to pay their bills. In comparison to students from other institutions, community college students felt more constrained in their financial situation. Several students described their finances as being very tight; that is, they live paycheck to paycheck. Several students said child-related expenses, including child care and school supplies, contribute to their financial difficulties. Of the eight students who reported working while enrolled in school, two reported working more than 30 hours per week. Of the remaining four students who were unemployed, two cited their unemployment as a reason for using loans to pay for school. Public four-year institutions Participant profile The four-year public institutions category included students from an HBCU and an HSI. Total number of participants 19 Median age 26 Outstanding student loan debt $16,000 or more (11 students reporting) Comment summary While more than half of students reported that their current financial situation is stable, the remaining students said their finances were tenuous, with some students indicating that they are broke or hanging on by a thread. Two students reported difficulty with making ends meet because of seasonal fluctuations in their work, or the lack of available contract jobs in their profession. When asked about how they saw their financial situation after graduation, students at the HSI overwhelmingly reported that they would attend graduate school and would defer payment or take on additional debt to obtain a master s degree. Students at the HBCU generally reported a sense of optimism that their financial situation would improve on graduation. Some students said they would feel relief, while others said they would feel a temporary relief until they go to graduate school. Private four-year university Participant profile All participants were seniors. Total number of participants 6 Median age 22 Outstanding student loan debt $11,000 or more (5 students reporting) Comment summary In comparison to students at other institutions, students at the private university were less optimistic about their future financial situation. When asked to characterize their current financial situation, students said that it was manageable, but thought it would worsen. One student reported feeling the calm before the storm. When asked how they see their financial situation after graduation, some students said they worried about finding a job. Several students said they were nervous because their loan payments would be high. Several students reported that they would be taking on additional debt to go on to graduate or law school. 6 Student Focus Group on Debt Management

7 Recommendations to Improve Communicating Student Loan and Debt Management Information While the focus groups underscored certain differences in student needs regarding loans and managing debt, one clear theme emerged: information must be made relevant and timely for students. Students use as many modes of communicating as are currently available. To better reach students, institutions (including loan servicers and nonprofits) should consider diversifying their communication strategy. Based on the findings, the following is a list of recommendations for improving communications regarding student loans and debt management. Equip financial aid offices with information and resources for students: Students trust the financial aid office at their institution and are more likely to contact their institution s financial aid office when they have questions about their loan. Use traditional media outlets to provide accurate and timely financial aid information to parents and students: Students reported some confusion given recent media reports on possible increases in student loan interest rates. Providing expert advice through traditional media outlets could help reduce confusion as state and federal policymakers consider new proposals for financial aid, including loans. Ensure multiple modes of communication of student loan information: Most students reported that they prefer multiple modes of communication when receiving information about their loans, including concise s or print brochures, detailed frequently asked questions made available through the student financial aid or loan servicer website, regular mail, and in-person communication. Combine text and video presentations as a part of online loan counseling modules: Students reported that online loan counseling sessions would be more effective with a combination of text and video. Many students also prefer the option of receiving loan counseling in-person so that they can ask questions. Ensure that product content and information is targeted to students based on age, ethnicity, income, year in school, type of institution, and future academic and career plans: Students from different demographic groups and institutions have varying needs. All students will need information based on their long-term goals, i.e., pursuing a graduate degree versus entering the workforce. Ensure loan counseling, informational brochures, and financial education curriculum provide specific information about loan repayment: The students most common loan questions were who to pay, when to pay, and how much to pay. Students did not have a clear understanding of when they can begin repaying their loans, including whether they can or should start paying on their loans while they are still in school. Provide financial literacy education to both parents and students throughout the education pipeline: Students overwhelmingly reported that they learned financial management from their parents. Many said this was a positive learning experience; others reported that their parent s money management was very poor. Targeting parents with financial aid and debt management information is critical to improving financial education and consumer understanding of student loan debt. Offer live chat feature: Given that students prefer multiple modes of communication, customer service and call centers should consider incorporating an online live chat feature on their websites. Student Focus Group on Debt Management 7

8 Considerations for Further Study The information collected as a part of these focus groups provides insight into how students manage their money and view their loans effect on their financial stability and future success. Future studies, including larger, more targeted focus groups or surveys, could provide additional insights on other topics, such as how to: Design and deliver financial education; Provide consumer information about student loans; and Describe financing college to different populations of students. About the Council Established in 1997, the Council provides the higher education community with innovative leadership, activities, and services that improve the understanding and management of personal and education finance by students and families. In collaboration with TG, the Council establishes relationships with community partners to heighten student and family awareness of the availability of, and responsibility toward, education finance; and works with institutions, associations, and other stakeholders to develop, implement, and evaluate approaches for information dissemination, financial education, and debt management practices and programs. About TG TG promotes educational access and success so that students can realize their college and career dreams. As a nonprofit corporation, TG offers resources to help students and families plan and prepare for college, learn the basics of money management, and repay their federal student loans. For more information about TG, visit To learn more about college and career planning, visit TG s Adventures In Education (AIE ) at Texas Guaranteed Student Loan Corporation