Brenda and Brandon Borders started dating seriously during their sophomore year of college. They knew they wanted to get married after graduation, but as they started to talk about where they would live and work, they began to realize they might not be able to afford it.
Brenda, a ministry major, and Brandon, a journalism and public relations major, both took out loans to pay for their schooling at Huntington University, a Christian college in Huntington, Ind. By the time they graduated in May 2011, their combined student loan debt would total nearly $90,000. After just two years in school, they realized their education might not pay for itself once they started working.
"What in the world are we going to do?" Brenda remembered asking Brandon as they considered their future.
As more students take out loans to pay for college and fewer graduates are able to find jobs once they have their degrees, many young adults are faced with the prospect of starting their lives weighed down by crushing debt. Dubbed the "student loan crisis," the mounting debt problem has become a campaign issue. Both President Barack Obama and Republican Mitt Romney are calling for a reprieve on this summer's scheduled increase in interest rates on federally subsidized loans, even as Republican lawmakers say the government can't afford it. But as politicians quibble over legislative answers, private companies have stepped in to offer entrepreneurial solutions.
Last year, a group of Stanford graduates decided backing students at their alma mater might be a good investment. The alumni pooled their money and started offering loans at a relatively low, fixed rate-5 percent-to students attending Stanford's business school. Most non-subsidized student loans carry an interest rate between 6.8 percent and 9.8 percent. Through their company, Social Finance, the investors will expand their loan offer next year to students at 35 other schools. They expect to loan $50 million to both graduates and undergraduates and refinance an additional $100 million in existing loans.
Social Finance is betting on students at prestigious schools who are getting degrees that generally lead to well-paid jobs. LRAP Association is taking the opposite approach, offering insurance to students seeking less lucrative careers. Using a model that started at Yale Law School, the company offers to make loan payments for students who can't afford the expense immediately after graduation. Using a complicated system of actuarial tables and risk analysis, the loan repayment assistance program estimates how many students within a certain pool will need help and calculates a premium for each student. The participating schools cover the cost.
Huntington University started offering loan repayment assistance through LRAP Association as a pilot program several years ago. So many students wanted to participate that school administrators decided to make the offer to every member of this year's freshman class. Almost half the school's undergraduates-472 of 1,000 students-participate in the program now. About three-quarters of the school's students take out loans at some point during their time at Huntington, and the school eventually expects to offer all of them a loan repayment guarantee, said Jeff Berggren, senior vice president for enrollment management and marketing.
Before the economic downturn, students didn't worry so much about finding work or making enough money to pay back their loans, Berggren said. But as jobs became harder to find and more graduates ended up out of work or underemployed, students and families became leery of borrowing to pay for education. Huntington administrators wanted to find a way to ease students' fear of being saddled with a debt they couldn't repay, Berggren said.
The school also wanted students to feel free to prepare for careers that might not bring in the biggest paychecks: "As students graduate, we hope they would look not only at higher paying jobs but also where might God want them to serve," Berggren said.
Brenda Borders started at Huntington as an exercise science major. But during her sophomore year, about the time she and Brandon started dating, she felt God calling her to youth ministry. When she heard about the loan repayment assistance offer, she thought it sounded too good to be true. The school accepted both Brenda and Brandon into the program in 2009.
"We felt all of a sudden that we were going to be OK," Brenda said.
Both students got job offers before graduation. Brenda works part time as a youth minister at Life Community Church, in Fort Wayne, Ind. She also works part time as a pre-school teacher at a local daycare center. Brandon works full time as a marketing and sales assistant at OnlyInternet, a small web company in Bluffton, Ind. The assistance program covers 100 percent of Brenda's loan payment and 80 percent of Brandon's. As they start making more money, the assistance will decrease, until they can finally make the payments on their own.
Huntington pays for the assistance program premiums with money that used to fund financial aid and scholarships.The premiums change every year, based on the students and their degree choices. Although an influx of students seeking more service-oriented careers could raise premiums, Berggren expects the school's financial commitment will level off as older graduates start making more money and transition out of the program.
Although Huntington is the only school offering the program to all of its students, LRAP Association also works with smaller groups of students at several other Christian schools, including Taylor University, in Upland, Ind., Judson University, in Elgin, Ill., and Baptist Bible College and Seminary, in Clarks Summit, Pa.
George Leef, the director of research for The John William Pope Center for Higher Education Policy, applauded the increase in creative private lending efforts. Entrepreneurial solutions are more likely to succeed because they won't waste money on dubious loans, he said. Private lenders will work only with students who have the best academic preparation and motivation, creating the proper incentive, he said.
"The fact that somebody is trying this is an excellent sign indicating that there's comprehension out there that the current system doesn't work very well," he said. "New initiatives to improve on it are welcome."