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Record debts loom after graduation

Duke is incoming freshman Lionel Watkins’ dream school, but the debt he will incur during his four years almost kept him from attending.

Watkins is part of a national trend among college students who are subject to severe student loan debt after graduation. The New York Times reported last week that student loan debt will likely exceed $1 trillion this year as Congress considers cuts in government funding for federal aid.

For the first time in U.S. history, student loan debt will exceed credit card debt, according to The New York Times. The Project on Student Debt, a nonprofit research and advocacy initiative, reported last year that the average student loan debt was $24,000, up 6 percent from 2009. With the House of Representatives proposing cuts to the Pell Grant Program, around 1.7 million low-income students—a fifth of current Pell recipients—would lose eligibility to the program, the Huffington Post reported last week. These changes, among other federal spending cuts, have forced universities across the country to reconsider the financial aid packages they are offering incoming freshmen for the upcoming school year.

“My family continues to assure me that they support my decision to attend any university, no matter the financial situation,” Watkins wrote in an email. “I, however, am very apprehensive.... I hope to attend [medical] school after graduation, and graduating with what could potentially be somewhere between $40,000 and $50,000 of debt is frightening.”

Lower than average

Duke’s average student loan debt upon graduation is currently ranked below the national average. In 2010 students graduated with an average debt of $21,884—a decrease from $23,093 in 2009, according to statistics from the Duke Office of Financial Aid.

Alison Rabil, assistant vice provost and director of financial aid, said the University has been able to decrease the average student loan debt every year for the past three years because of the Duke Financial Aid Initiative, which began in 2005 and raised more than $300 million.

The initiative enhanced the need-based undergraduate financial aid program by implementing financial guarantees, such as eliminating the parental contribution for families with institutionally determined incomes less than $60,000 and eliminating loans for families with incomes less than $40,000.

“From Duke’s perspective, our student loan debt is going to be significantly less than the national average because we are able to meet student need,” Rabil said. “The tuition is not insignificant and with the funds from the initiative, we are able to cap our student loans and borrowing from families.”

Rabil added that she is skeptical that the University will be able to lower the average graduating senior’s debt for the 2011-2012 academic year.

“I would love to go below $20,000,” she said. “But given the economy, I don’t know if that is going to happen. What seems to be happening is that we limit the borrowing in the package, but... some students do decide to take out the maximum amount of federal support in order to pay for the parent contribution piece.”

Debt upon graduation

James Johnson, visiting professor of the practice of public policy, wrote in an email that students could potentially leave Duke with debt that stays with them well into their 40s. Citing a decline in need-based tuition grants, a rise in tuition and weak finances for some families, Johnson said many students must make tough decisions upon graduation.

“Higher student debt could impact... career choice, and might make many students think twice before committing long-term to a position in the nonprofit or public sector,” he said.

Katie Henderson, Pratt ’10, is currently working as an energy auditor for small businesses while paying back loans she took out during her time at Duke.

“I didn’t get my job until October after graduation so my grace period worked out for me,” she said. “But if I hadn’t gotten a job, it might have been very uncomfortable.”

To assist students who are graduating in debt without a job or who are in a difficult financial situation, Rabil said the financial aid office holds exit interviews with all students receiving financial aid to go over strategies and options for repayment.

“If you have several loans, you can always apply for a deferment and... talk to your lenders about what your options are,” Rabil said. “For any kind of federal loan, as long as you let them know that you are not in a position to make the payments, they can give you a forbearance [on payment] or some sort of flexible solution.”

A class struggle

The prospect of high student debt may deter some students from enrolling at Duke next Fall.

Stefan Gorham, an early decision applicant from New York, said he was pleased with the package that Duke offered him. He wrote in an email that Duke provided funding for all expenses aside from a small amount of loans and his expected family contribution, which he called a “very reasonable amount.”

The expected family contribution is calculated using an institutional formula that takes into account a family’s income and assets and makes allowances for factors such as a family’s living expenses and the number of children in college.

Watkins said he was “shocked” by the University’s calculation of his EFC, as well as the fact that he cannot use outside scholarships toward his EFC. Before receiving his financial aid package from Duke, Watkins received an EFC calculation from Yale University, Stanford University, Rice University, the University of Pennsylvania and Northwestern University ranging from $750 to $7,000. His expected contribution from Duke is $8,500.

Jacob Vigdor, professor of public policy and economics and director of graduate studies, wrote in an email that while households may be less likely to put money toward big-ticket purchases given the current economy, many families still value higher education. Students see their education as an investment in the future, making the debt worth it, he said.

“For a small number of [students], that means paying tuition at an elite private university like Duke,” Vigdor said. “We certainly believe that an investment in a Duke education will pay off for our students down the road.”

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