Economic Recession and Student Financial Instability: How Academic Advisors Can Help

1
Economic Recession and Student Financial
Instability How Academic Advisors Can Help
Session 089 Thursday, October 2nd 2008 NACADA
Annual Conference Chicago, IL

• Reed Thomas Curtis
• University of South Carolina
• curtisrt_at_gmail.com

2
Presentation Overview
Blessed are the young for they shall inherit the
national debt. Herbert Hoover
1
The Situation
2
The Students
3
The Support
4
The Strategies
Conclusion
3
Terminology

• Recession A significant decline in economic
  activity. In the U.S., recession is approximately
  defined as two successive quarters of falling
  GDP, as judged by NBER. A recession in one
  country may be caused by, or may itself cause,
  recession in another country with which it
  trades. (Deardoff, Alan V., 2008)
• Financial Stability The avoidance of financial
  crisis. (Deardoff, Alan V., 2008)

4
Economic Crisis of 2008

• Housing CrisisSubprime mortgages.
• Meltdown of the top Wall Street investment banker
  Bear Stearns.
• US Dollar at a record low compared to the Euro.
• Oil Prices Skyrocketing
• Leads to major aviation bankruptcies.
• Global Inflation Crisis
• Clothing
• Food
• Increased use of Food stamps, and governmental
  support.

5
Economic Crisis of 2008

• July 2008
• Mortgage leader Indymac is taken over by federal
  government.
• September 2008
• Lehman Brothers declare Bankruptcylargest in US
  history.
• Federal government bails out AIG and purchases
  80 of stock.
• Federal Government takes over mortgage giants
  Fannie Mae and Freddie Mac.
• Washington Mutual is bought by JP Morgan Chase.
• Mother of All Bail-Outs (MOAB)Proposed 700
  billion rescue package for troubled mortgage
  purchases.
• Emergency Economic Stabilization Act of 2008
  fails sending wall street on a nose dive, the DOW
  went down 777.88, the largest drop in US History
  for a single day.

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Rising Tuition and Fees
During the last decade tuition and fees alone
at private and public universities grew by 40
percent and 33 percent, respectively. By
comparison, the median family income increased by
only 12 percent.
(Cappannari, 2002)
1993-2003
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Student Debt

• Late night pizzas 5,200. Books for class
  7,000. Tuition and Fees 120,000.
• Moving back into your parents basement
  Priceless

(Levine, 2004)
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College Student Population

(NCES, 2005)
64
Graduate with debt.
(King and Bannon, 2002)
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Graduating Into Debt
(King and Bannon, 2002)
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Debt Manageability
39
of Graduates with debt have loans that are
Unmanageable.

• Their student loan debt exceeds 8 percent of
  their pre-tax yearly income. Debt manageability
  is an even bigger problem for African-American
  and Hispanic students, who tend to come from
  lower-income families and whose expected annual
  post-graduation income is below the national
  average.

(King and Bannon, 2002)
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Debt Inequality
(King and Bannon, 2002)
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Credit Cards

• College has become a carnival atmosphere where
  credit card companies view freshman and others as
  both "fresh meat and potential long term
  customers (Johnson, 2005).

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Credit Cards

• The majority of students obtain their first
  credit card in college, most in their first
  semester, and by graduation over half have
  multiple cards (Johnson, 2005).
• Among the many reasons are heavy solicitation and
  credit card access, growing living and school
  expenses, lack of financial literacy etc
  (Johnson, 2005).

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Solicitation
8

• What is the average number of Credit Card offers
  a Freshman receives during their first week of
  classes?

(Johnson, 2005)
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The Nightmare

• The Credit Card Nightmare
• The Collection- efforts are often aggressive.
• Stigmatization-embarrassed and lack supportive
  source of empathy. (scared to talk to parents)
• The Burden- becomes constant and requires
  lifestyle changes. (Johnson, 2005)
• Credit card and other debts can cause emotional
  problems and negatively impact their learning
  abilities in college. (Roberts and Johnson, 2001)
• A student stressed over credit card debt may
  suffer additional financial, psychological, and
  physical problems (Norvilitis, 2003)

(Johnson, 2005)
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Overwhelmed with Debt
Ohio State University Research Challenge Program
(Johnson, 2005)
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How do they pay?

• Using Credit to Pay-off Credit
• 60 of freshmen and 75 of upperclassmen have
  maxed out their credit cards at least once.
• 60 of freshmen and 2/3rds of upperclassmen have
  used one credit card to pay off another one.
• 73 of freshmen and 67 of upperclassmen used
  student loans to pay off credit card balances.
• (Chen and Volpe, 1998)
• Bankruptcy
• The Number of people under the age of twenty-six
  who filed for bankruptcy tripled between
  1995-2000

(Johnson, 2005)
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Implications of Bad Credit

• Employment Problems
• Students with credit card debt--gtwork more, study
  less to repay debt and are not likely to have
  best grades--gthurts their ability to secure a
  well-paying job upon graduation
• Less than one third of freshmen in OSU Survey
  realized that they could be denied a job based on
  bad credit report.
• Future life
• American Dream students with bad credit after
  graduation find a brutal inability to purchase a
  home at reasonable interest rate

(Johnson, 2005)
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Tragic Responses

• Financial instability can increase stress and
  lead to depression.
• Some students feel so overwhelmed and hopeless
  that they commit suicide as a result.
• The University of Central Oklahoma saw two
  specifically debt-related suicides within two
  years.

(Johnson, 2005)
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The Academic Advisors Role

• Increase personal financial literacy in order to
  empower students to do the same.
• Keep up to date on financial issues that face
  students.
• Academic success, health and well-being, and
  future quality of life.
• Advocate institutional improvements and responses
  to the need for financial literacy amongst
  students.
• Maintain an open-door policy as students in
  financial crisis feel they have no one to turn
  to.
• Become a legitimate resource repository.
• (Curtis, 2008)

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Academic Advising

• Encourage academic advising organizations on
  campus to offer professional development
  opportunities on the topic.
• Be aware of all available services and direct
  students to them
• Warn about the availability of biased and or
  false information on the internet.

(Curtis, 2008)
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Higher Education Solutions

• Financial Literacy Universities must provide
  adequate financial education that is
  comprehensive and realistic.
• First-year and other transitional courses should
  incorporate financial literacy.
• Limits on credit card and other debt-related
  solicitation.
• Offer comprehensive financial counseling,
  services, and programs.
• (Curtis, 2008)

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Institutional Examples

• Comprehensive financial education programming and
  services.
• Rutgers University
• University of Virginia
• Offices of Financial Planning
• Texas Tech University
• Bowling Green University

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Rutgers University

• Comprehensive programs and resources for
  students.
• Focus on both health and wealth.
• Monthly finance and health messages.
• Internet quizzes to assess financial literacy,
  identity theft prevention, investment risk
  tolerance, etc.
• Strong faculty buy-in RU-FIT (Rutgers University
  Financial Independence Training)

(Rutgers University, 2008)
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Texas Tech
Provides students, faculty, staff, and community
with information in the following areas
Establishing credit Using credit wisely
Creating a budget Saving money
Investment education Correcting credit
report mistakes Repaying debt
Organizing finances Tax planning
Selecting employee benefits Expenses during
or after college Buying a car or home
Planning premarital finances
(Texas Tech University, 2008)
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Questions?
Thank You!
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Resources
Cappannari, A. (2002, April 22). American
college students graduate with record levels of
debt. Retrieved September 29, 2008, from
http//www.wsws.org/articles/2002/apr2002/debt-a22
.shtml Curtis, R. T. (2008). Students in
Financial Crisis How Academic Advisers Can Help.
The Mentor. Retrieved from http//www.psu.edu/dus/
mentor/080227rc.htm Chen, H. and Volpe, R.P,
1998, "An Analysis of Personal Financial Literacy
among College Students," Financial Services
Review, Vol. 7, No. 2, pp. 107-128. Deardoff, A.
(2001). "Financial Stability". Deardorff's
Glossary of International Economics. Retrieved
September 30, 2008, from http//www-personal.umich
.edu/alandear/glossary/f.html. Deardoff, A.
(2001). "Recession". Deardorff's Glossary of
International Economics. Retrieved September 30,
2008, from http//www-personal.umich.edu/alandear
/glossary/. Experience Inc. (2006, August 15).
Nearly 60 of college graduates boomerang back
home after living on their own. Retrieved
November 20, 2007, from http//www.experience.com/
corp/press_release?idpress_release_1155590079977
channel_idabout_uspage_idmedia_coverage_newsta
bcn1 Glater, J. (2007, November 4). Move over,
Orbitz. New York Times. Retrieved November 20,
2007, from http//www.nytimes.com/2007/11/04/educa
tion/edlife/spending.html?_r1orefslogin
Hunt, J. B., Jr., Carruthers, G., Callan, P.
M., Ewell, P. T. (2006). Measuring up, 2006
The national report card on higher education.
National Center for Public Policy and Higher
Education. Retrieved November 29, 2007, from
http//measuringup.highereducation.org/_docs/2006/
NationalReport_2006.pdf

• Maxed Out College Students A Call To Limit
  Credit Card Solicitations on College Campuses by
  Creola Johnson 2005
• The Burden of Borrowing--State PIRGs Higher
  Education Project 2002
• Graduate Students and Credit Cards, Fall
  2006--NellieMae
• Undergraduate Students and Credit Cards,
  2004--Nellie Mae
• The Project on Student Debt--September 2007
• Ohio State University Research Challenge
  Program--2005
• More Graduates Mired in Debt, Survey FindsDiana
  Schemo, NYTimes March 8, 2002
• American college students graduate with record
  levels of debt. Andrea Cappannari, Retrieved
  October 14, 2007, from http//www.wsws.org/article
  s/2002/apr2002/debt-a22.shtml

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Resources
Johnson, C. (2005, June 1). Call to limit
soliciting of credit cards on campus. NYU Journal
of Legislation and Public Policy, 8(2), 191277.
Retrieved October 7, 2007, from
http//www.law.nyu.edu/journals/legislation/articl
es/vol8num2/Johnson.pdf King, T., Bannon, E.
(2002, March). The burden of borrowing A report
on the rising rates of student loan debt.
Washington, D.C. The State PIRGs' Higher
Education Project. Retrieved November 19, 2007,
from http//www.pirg.org/highered/BurdenofBorrowin
g.pdf Levine, Jessica. "Students overload on
credit." Daily Targum. 28 Jan. 2004.Rutgers
University.30 Sept. 2008 lthttp//media.www.dailyta
rgum.com/media/storage/paper168/news/2004/01/28/un
iversity/students.overload.on.credit-589568.shtmlgt
. Moran, K. (2002, October 1). Grant support for
graduate and undergraduate students who perform
research. The Mentor An Academic Advising
Journal, 4(4). Retrieved November 20, 2007, from
http//www.psu.edu/dus/mentor/ Nellie Mae Inc.
(2005, May). Undergraduate students and credit
cards in 2004. Braintree, MA. Retrieved November
20, 2007, from http//www.nelliemae.com/pdf/ccstud
y_2005.pdf Norvilitis, J. M., Szablicki, P. B.,
Wilson, S. D. (2003). Factors influencing
levels of credit card debt in college students.
Journal of Applied Social Psychology, 33, pp.
935947. Rutgers University. "Rutgers
University Personal Finance." Rutgers University
Personal Finance. 23 July 2008. Rutgers
University. 30 Sept. 2008 lthttp//njaes.rutgers.ed
u/money/gt.
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Resources
Sutton, W. (2002, November 11). Knowing the facts
about financial aid Basic overview of financial
aid for academic advisers. The Mentor An
Academic Advising Journal, 4(4). Retrieved
November 20, 2007, from http//www.psu.edu/dus/men
tor/ Texas Tech University. "Red to Black." Red
to Black. 30 Sept. 2008. Texas Tech University.
30 Sept. 2008 lthttp//www.orgs.ttu.edu/r2b/gt. The
Project on Student Debt (2007, September).
Student debt and the class of 2006. Berkeley, CA
The Project on Student Debt. Retrieved November
20, 2007, from http//projectonstudentdebt.org/fil
es/pub/State_by_State_report_FINAL.pdf United
States Department of Education (2006, September).
A test of leadership Charting the future of U.S.
higher education. Retrieved November 28, 2007,
from http//www.ed.gov/about/bdscomm/list/hiedfutu
re/reports/final-report.pdf

• ACE New ACE Publication Examines How Much
  Students Borrow to Pay for College. Retrieved
  October 14, 2007, from http//www.acenet.edu/AM/Te
  mplate.cfm?SectionPress_Releases2TEMPLATE/CM/Co
  ntentDisplay.cfmCONTENTID10968
• ACE Federal Student Loan Debt 1993-2004.
  Retrieved October 14, 2007, from
  http//www.acenet.edu/AM/Template.cfm?SectionCPA
  Template/CM/ContentDisplay.cfmContentID10733