At One Community College, Students Will Need a Budget to Get a Loan

April 14, 2011

Starting this fall, Virginia's Tidewater Community College won't disburse federal loans to students until they submit a detailed budget with their loan-repayment plans.

The college's new policy—which supplements existing federal requirements for student borrowers, such as entrance and exit counseling—adds steps that Tidewater officials hope will help students make smarter decisions when taking out loans.

"The difference for what we do in financial aid and someone taking on a mortgage is that, with the mortgage, you're immediately putting it into your budget, ensuring that you can make a payment," said Deborah M. DiCroce, Tidewater's president. "That's not exactly the case with financial aid."

The new policy wasn't a response to irresponsible borrowing by students, according to Jennifer Harpham, the college's financial-aid director. The average one-year loan debt of those who borrowed at Tidewater in 2009-10 was $3,990. Rather, the new policy is part of the college's efforts to help students plan for loan repayment.

"They say you can tell what you value by where you put your money," Ms. DiCroce said. "We are investing in this to ensure that it truly is a meaningful and value-added piece to student success."

Under the new policy, after a student requests a loan, the financial-aid office will prepare a repayment plan with a summary of the student's federal borrowing history at Tidewater and other institutions, along with an estimate of the monthly loan payment after graduation. The student then completes two budget worksheets: one that inquires about the student's current financial situation, in the event that he or she unexpectedly leaves the college, and one that plans for the student's anticipated situation after graduation, including the average starting salary for the job the student expects to have.

The financial-aid office won't disburse loans until it receives both budget worksheets and a signed copy of the student's loan-repayment plan.

Identifying High-Risk Borrowers

Ms. Harpham said that "the word is out to students, but not formally," about the new procedures. She expects most students will appreciate the opportunity to glimpse what their loan payments could look like after college.

Those steps won't just require additional work by students. Ms. DiCroce acknowledged that the financial-aid office would need more manpower to draft a repayment plan for each student and review all the budget worksheets, and she said the college was prepared to pay for the extra staff.

"Exactly what that will look like is a little up for grabs," she said. "I fully expect, as with anything of this magnitude, that we will probably do some refinements in the course of this first year."

Students must fill out budget sheets each year that they request loans, and Ms. Harpham said the college would also supplement federal-loan exit counseling by providing a comprehensive loan summary and repayment plan to its students as they leave Tidewater.

Although the goal of the new policy is to keep students from borrowing more than they can pay back, the college also plans to identify high-risk borrowers who are still enrolled and summon them for financial counseling.

Students with low grade-point averages and high debts are of particular concern to Ms. DiCroce. "To me that's a flag that the student might very well need a one-on-one with a live adviser," she said.

Ms. DiCroce said she had not seen similar policies at other colleges, but she expected it could catch on.

"This has huge replicability potential," Ms. DiCroce said. "I think it's a missing piece of student success, and as one looks at it on the institutional-accountability side, to me, it's a no-brainer."