Session 089
Thursday, October 2nd 2008
NACADA Annual Conference
Chicago, IL
Economic Recession
and Student
Financial Instability:
How Academic
Advisors Can Help
Reed Thomas Curtis
University of South Carolina
curtisrt@gmail.com
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
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)
Economic Crisis of 2008
• Housing Crisis—Subprime 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.
Economic Crisis of 2008
•
•
July 2008:
– Mortgage leader Indymac is taken over by federal
government.
September 2008:
– Lehman Brothers declare Bankruptcy—largest 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.
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)
40%
Private
Universities
12%
33%
Public
Universities
1993-2003
Average
Family Income
Student Debt
“Late night pizzas:
$5,200. Books for
class: $7,000.
Tuition and Fees:
$120,000.
Moving back into
your parent’s
basement:
Priceless”
(Levine, 2004)
College Student Population
Level of Study
Population
Undergraduate
14,964,000
Graduate
2,186,000
First
Professional
337,000
Total
17,487,000
(NCES, 2005)
64%
Graduate with
debt.
(King and Bannon, 2002)
Graduating Into Debt
Percent of Students Graduating with
Debt, by Type of Debt
64.00%
41.00%
12.00%
Federal
Student Loan
Credit Card
PLUS
(King and Bannon, 2002)
6.00%
Private Loan
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 lowerincome families and whose expected
annual post-graduation income is below
the national average.
(King and Bannon, 2002)
Debt Inequality
(King and Bannon, 2002)
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).
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).
Solicitation
What is the average number of Credit
Card offers a Freshman receives
during their first week of classes?
(Johnson, 2005)
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)
Overwhelmed with Debt
Ohio State University Research Challenge Program (Johnson, 2005)
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)
Implications of Bad Credit
•Employment Problems
•Students with credit card debt-->work more,
study less to repay debt and are not likely to have
best grades-->hurts their ability to secure a wellpaying 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)
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)
The Academic Advisor’s 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)
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)
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 debtrelated solicitation.
•Offer comprehensive financial
counseling, services, and programs.
(Curtis, 2008)
Institutional Examples
•Comprehensive financial education
programming and services.
•Rutgers University
•University of Virginia
•Offices of Financial Planning
•Texas Tech University
•Bowling Green University
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)
Texas Tech
Client Based
Community
Based
Outreach
Based
• Confidential one-on-one counseling.
• Addresses: money management, debt reduction,
identity theft, employee benefits, budgeting, and goal
setting.
•Confidential one-on-one counseling.
•Helps faculty, staff, and community.
•Addresses: Money Management, debt reduction, identity
theft, family finances, and saving for the future.
•Programs, events, and presentations that target Texas Tech
students and the local community.
•Presentations address: managing credit, avoiding identity
theft, eliminating debt, creating a budget, and other current
financial topics.
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)
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?id=press_release_1155590079977&channel_id=about_us&page_i
d=media_coverage_news&tab=cn1
Glater, J. (2007, November 4). Move over, Orbitz. New York Times. Retrieved November 20, 2007, from
http://www.nytimes.com/2007/11/04/education/edlife/spending.html?_r=1&oref=slogin
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
Resources
Johnson, C. (2005, June 1). Call to limit soliciting of credit cards on campus. NYU Journal of Legislation
and Public Policy, 8(2), 191–277. Retrieved October 7, 2007, from
http://www.law.nyu.edu/journals/legislation/articles/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/BurdenofBorrowing.pdf
Levine, Jessica. "Students overload on credit." Daily Targum. 28 Jan. 2004.Rutgers University.30 Sept.
2008
<http://media.www.dailytargum.com/media/storage/paper168/news/2004/01/28/university/stude
nts.overload.on.credit-589568.shtml>.
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/ccstudy_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. 935–947.
Rutgers University. "Rutgers University Personal Finance." Rutgers University Personal Finance. 23 July
2008. Rutgers University. 30 Sept. 2008 <http://njaes.rutgers.edu/money/>.
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/mentor/
Texas Tech University. "Red to Black." Red to Black. 30 Sept. 2008. Texas Tech University. 30 Sept.
2008 <http://www.orgs.ttu.edu/r2b/>.
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/files/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/hiedfuture/reports/final-report.pdf