Loan repayment programs alleviate student debt
Fear not, starving artists. Colleges are catering.
Liberal arts colleges across America have found a way to help alumni pay off their student loans. If graduates get jobs and their annual income is considered low by their university’s standards, they are eligible for what’s called the Loan Repayment Assistance Program (LRAP).
Spring Arbor University, a Christian college in Michigan, is adopting the program this fall and joining more than 30 undergraduate private colleges who already offer it.
“We want to provide an education for people who are interested in arts that shape our culture,” said Matthew Osborne, vice president for enrollment management at Spring Arbor. “This program provides a way to do that without saying, ‘Oh, by the way, you have to be a starving artist.’”
Although many schools enroll select students in LRAP, Spring Arbor is one of four colleges to automatically enroll all incoming freshman in the program. Others include Central Christian College in Kansas, Oak Hills Christian College in Minnesota and Huntington University in Indiana.
LRAP Association, who runs the LRAP program for undergraduates, is open to working with public schools and graduate programs, but most of their current clientele is private liberal arts colleges, many of which have religious affiliations.
Ruthie Wellhausen, vice president of client service at LRAP Association, says one reason Christian colleges have adopted the program is because it aligns with their mission to help students “follow where the spirit leads,” even if it leads jobs that offer annual incomes at or below the poverty level.
“When you’ve got this issue of calling, you’ve got to pursue it,” Osborne said. “We want our students to feel like they can pursue any calling in their life and not feel restrained by their loans.”
Although loan repayment programs have existed at law schools since the 1980s, about five years ago LRAP Association President Peter Samuelson modified the program for undergraduates.
Here’s how it works: schools pay LRAP Association a fee per student each year that student is paying off loans. Then as students begin paying their federal loans after college, LRAP reimburses them based on low- and high-income thresholds set by their universities.
Spring Arbor determined their low- and high-income thresholds based on current alumni wages and the amount of money the college was willing to pay for LRAP services.
Although the average minimum wage income is about $15,000 annually, Spring Arbor graduates who earn less than $20,000 a year will be reimbursed for their student loan costs as long as they are working at least 40 hours each week.
But not all graduates are eligible for full loan reimbursement. Those working less than 40 hours a week receive fewer benefits.
Even for graduates working full-time, the benefits decrease proportionally as the graduate’s annual income approaches the upper-income threshold, which is $37,000 for Spring Arbor alumni.
Last year, Spring Arbor graduates had an average debt of $32,000 per student—only slightly higher than 2011 national averages at $29,095 for private schools and $23,065 for public schools.
LRAP Association currently serves 1,000 students, and it covers federal student loans, private alternative loans and parentPLUS loans. The program expires when the graduate’s income surpasses the upper-threshold or the loan is paid off.
Jenna Robinson, director of outreach at the John William Pope Center for Higher Education, says a potential problem with LRAP is that it might encourage students not to look for promotions so they can get their loans paid off for free.
But Student Loan Expert Heather Jarvis, who has worked with various other LRAP programs since 2003, says although that criticism is common, it is often unfounded.
“In my experience I think most people are motivated by how they can earn as much as possible rather than how they can be as lazy as possible,” Jarvis said.
Although LRAP Association’s terms and prices vary school-to-school, general rules require students to graduate from the school providing their LRAP benefits and find a job or internship after graduation. Then, depending on the student’s income, they may be eligible for a full or partial loan reimbursement.
Students interested in graduate school are allowed to “pause” or defer their benefits until they graduate, Wellhausen said.
Huntington University, another Christian college, was the first to automatically enroll an entire freshman class in LRAP during the fall of 2010.
“It’s helped us stabilize in an unstable time,” said Jeff Berggren, senior vice president of enrollment management and marketing at Huntington.
The school started testing LRAP in fall 2009 by providing it to a sample population of 60 students, Berggren said. Since then, enrollment has increased by 3 percent, and 81 percent of 37 incoming students who received LRAP in 2009 are still on track to graduate, compared to 65 percent of those who did not receive LRAP.
Katie Martin, who graduated from Huntington last spring, did not receive LRAP.
Martin says she heard a little about the program from friends during college, but she assumed it was a scholarship. When Huntington began offering LRAP to its entire freshman class in 2010, Martin says she and most other upperclassmen wished they were a few years younger so they could participate.
“I thought the school’s reasoning was fair, but at the same time, I wish I had the opportunity to receive the benefits,” Martin said.
She is paying off her loans for a degree in elementary education and middle school math by working as an admissions counselor at Huntington this year. She says her friends who have LRAP benefits felt more excited about graduation and less intimidated by the job market.
“They have a whole lot less stress knowing they have something that‘s going to help them make those payments,” Martin said. “It relieves a lot of pressure.”
But Robinson says stress about student loans is not always a bad thing. She sees the benefits of LRAP for students, but fears the assistance may give them less reason to fear the risk and responsibility of borrowing money.
Wellhausen says the loan repayment program keeps students accountable by requiring them to pay their loans on time before they are eligible for reimbursement.
“This isn’t a handout,” Wellhausen said. “This is something that schools are doing to let the students know they are worth the investment and that they are willing to put their money where their mouths are.”
But Robinson fears schools will use the program to postpone dealing with the source of the issue: outrageous tuition rates.
“It only puts a Band-Aid on the larger problem,” Robinson said. “Tuition has been spiraling out of control for decades now, and instead of reining it in, colleges are trying to preserve their revenue by attracting more students.”
In a recent survey of new students at Huntington, about 20 percent call LRAP a “huge” factor in their college decision.
Kelsey Hunt, a high school senior in Jackson, Mich., plans to study graphic design at Spring Arbor this fall. She said she was choosing between two colleges with good design programs, and Spring Arbor’s LRAP was the deciding factor.
“When I get out of college as a graphic designer, I’m not sure I’m going to be making a ton of money, so it seems like it will be good to have a safety net,” Hunt said.
According to the Chronicle of Higher Education, about 60 percent of nearly 20 million Americans who attend college borrow money annually to help cover costs, and rising tuition rates coupled with fewer job prospects have many students wondering whether higher education is even worth the price.
Spring Arbor’s on-campus enrollment fell 4 percent between fall 2011 and fall 2012, but Osborne says he expects LRAP to increase retention rates by 10 percent between fall 2013 and fall 2014.
Spring Arbor enrolls more than 4,000 students, including those online and at regional campuses, but they’re only offering LRAP to incoming, on-campus freshman. Osborne says the program will eventually cover all of the university’s 1,600 on-campus undergraduates.
Jarvis and Carroll Stevens, a former dean at Yale Law School who helped Samuelson start LRAP Association, affirm that the program is legally sound. Samuelson says graduates may be taxed on the benefits they receive depending on whether they work for a nonprofit organization. He encourages them to speak with a tax adviser.
As an advocate for student borrowers, Jarvis says students should pay attention to the details and remember that if they can’t find a job in the first place, they’re not going to get any assistance.
In 2012, the official unemployment rate for recent graduates with bachelor’s degrees was 6.8 percent—about two percent higher than the unemployment rate for all gradates at 4.5 percent, according to a study from Georgetown University’s Center on Education and the Workforce.
“I would encourage students to look at the career placement of the degree they’re considering,” Jarvis said.
Although she has never worked with LRAP Association, she says most other LRAPs benefit people, such as doctors in rural communities, who don’t earn enough money to pay back their loans because they are doing non-profit or service work. LRAP Association enables America’s ever-increasing number of underemployed graduates to accept low-income positions.
A Jan. 24 study conducted by the Center for College Affordability & Productivity (CCAP) in 2011 found that about half of college graduates (48 percent) have jobs that require less than four-year degrees because the number of college graduates exceeds the actual or projected growth in availability of high-skilled jobs.
At Spring Arbor, Osborne says LRAP is one way schools can help graduates afford to get “a foot in the door” by starting at entry-level positions and internships.
“There are going to be people with college degrees who will not be working in a job that requires a college degree initially,” Osborne said. “But at the same time, we can say that our graduates are prepared and ready to land full-time jobs when they come.”
For more information about LRAP, visit lrapassociation.org.