Let’s Talk About Debt…

Posted on May 1, 2014 by

How to talk to students about financing a college degree

Aaron Mattocks faced $45,000 in student loan debt after graduating from college.

Aaron Mattocks faced $45,000 in student loan debt after graduating from college.

After graduating from Sarah Lawrence College, Aaron Mattocks—now touring with Mikhail Baryshnikov in Big Dance Theater’s production of Man in a Case—realized he had six months to find steady income. “I left school with about $45,000 of debt,” says Mattocks, who was waiting tables and writing grants to make ends meet. “I was trying to find work as a dancer and really got discouraged.”

Paying off college debt on a dancer’s salary can certainly be challenging. But by taking on debt to pay for their education, dancers are investing in their futures. Mattocks’ parents wanted him to pay a lower in-state tuition and commute from home. But he was set on Sarah Lawrence and attributes much of his career success to connections he made there. “It really was worth it,” he says.

When deciding whether to take out a loan (and how much), students should understand their options and the obligations college loans entail.

Financial Aid 101

First, college-bound dancers need to understand the big picture. Early on, they should talk to their parents about what kind of financial support they can expect from the family. Most college websites provide an estimated Cost of Attendance (COA)—tuition, books, housing, transportation and personal expenses—as well as a net price calculator that estimates a student’s Expected Family Contribution (EFC). Financial need is calculated by subtracting the EFC from the COA. This figure determines eligibility for federal and state aid (via the Free Application for Federal Student Aid, or FAFSA). Colleges then offer financial aid packages—a combination of loans, grants and work-study—based on the student’s financial need.

Grants are often reserved for students with high financial need and do not need to be repaid. Merit scholarships, as well as scholarships from outside sources, are another valuable source of gift aid. The Federal Work-Study Program allots money that students must earn by working a campus or approved off-campus job for approximately 10–20 hours weekly per semester.

Loans—both federal and private—make up the bulk of financial aid packages. Federal loans have the benefit of lower fixed interest rates. Private loans, which have higher interest rates, should be used as a last resort.

There are two types of federal loans: subsidized and unsubsidized. With subsidized loans, the government pays the interest while a student is enrolled at least half-time; however, eligibility is based on financial need. Unsubsidized loans are not need-based, but interest accrues immediately.

Although Mattocks covered 75 percent of college costs through federal aid, work-study, need-based aid from Sarah Lawrence and a Presidential Scholarship, he took out $11,000 a year in private and federal loans to cover the rest. “The bank offered me its educational interest rates, but they were considerably higher than those from the government,” he says.

How Much Should You Borrow?

Federal loans have a cap on how much an undergraduate can borrow (about $31,000 for those who are dependents and $57,500 for independent students.) Loans typically take 10 to 20 years to pay off, with the first payment due six months after graduation. If you need to borrow more than the federal cap, private loans will extend the repayment period for up to 25 years, unless you can afford a higher monthly payment. Keep in mind, the longer it takes to pay off a loan, the more the student pays in interest.

Although students can’t choose how much the government offers in loans, they can choose how much to accept. Marisa Cohen, a senior dance major at Connecticut College, accepted her full award, even though the numbers were adding up. Seventy five percent of her senior year is covered by grants and work-study, and she’s paying for the remainder with $8,000 in federal loans. “Neither my family nor I have the funding to afford tuition without loans,” she says.

Repaying Loans

Loan repayment is a legal contractual obligation, so students must understand the lengthy obligation it entails. Late payments or default will impair a graduate’s credit rating. In the case of federal loans, the government can garnish wages to collect unpaid debt.

Even though repayment decisions are made after graduation, it’s smart to be informed about the options before signing. Brandy Gilliam of the Texas Woman’s University financial aid office says a good rule of thumb is to budget 8–15 percent of monthly income for loan payments. The standard, assigned repayment plan is a fixed monthly payment ($50–$400) for 10 years. Using this formula, a $300 loan payment would require monthly income of $2,000. The repayment plan may be changed at any time. Options include a graduated plan (payments start lower and increase every two years), an extended plan (fixed or graduated over 25 years) and income-based options (expected monthly payments adjust with income).

In cases where there are loans from multiple vendors, it may be more convenient to consolidate federal loans with one interest rate and one monthly payment. Beware, though. The new interest rate will be a weighted average of the combined rates, and students may forfeit certain rights for subsidized interest, deferment or loan forgiveness available under the individual notes.

Dancers can save money on interest by paying down the principal. To do this, rank the loans from highest to lowest interest rate. The idea is to make minimum monthly payments for each while applying any extra funds to the loan with the highest interest rate.

“Any time I received extra money, I put it on my loan rather than going shopping or buying a new computer,” says Mattocks. Faced with payments of $385 a month, he took a position as company manager for the Mark Morris Dance Group after graduation. The job, which he held for more than seven years before pursuing a full-time dance career, allowed him to pay off his loans while dancing on the side. Although he had to make difficult career and financial decisions after graduation, Mattocks has no regrets about his school choice. “When I look back,” he says, “I know I took on a better education.” DT

Amy Smith is a master’s candidate in dance theories and practices at UNC–Greensboro.

 

Photo by Abram Jibilian, courtesy of Aaron Mattocks

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