A student-loan debt insurance program may help advisors and their clients with college-age kids narrow down their list of ideal schools, especially if the student’s career goals aren’t likely to result in big paychecks.
The Higher Education Loan Protection (HELP) program from Kapnick Insurance is a way for colleges and universities to differentiate themselves as parents and students get more selective about choosing their school in the face of potentially unpayable levels of debt.
Students graduated with an average debt of $30,100 in 2015, according to the Institute for College Access & Success. A June report by Morningstar Credit Ratings found student loan debt was up 5% to $1.26 trillion as of the end of the first quarter of 2016. The delinquency rate for student loans was 11%; loans in deferment or forbearance raised the delinquency rate to 17%.
Kapnick’s HELP program is offered to colleges and universities. The schools pay a one-time fee for each incoming freshman class. The program will pay the monthly minimum on loans for students from those schools who can’t find jobs after they graduate, or who have to take jobs with salaries below a certain threshold.
Beth Ferguson, client executive of Adrian, Michigan-based Kapnick Insurance, and the lead of the HELP program, says private colleges are the program’s main customers as “those tuition bills are usually a little bit more expensive” than public schools.
“What colleges really struggle with is competitive advantages, especially when it comes to private versus public education and the increased cost associated with that,” she said.
The College Board found that the average tuition and fees paid for a private college in the 2015-2016 school year was $32,405.
“If a person graduates a university and has a lot of student debt, goes out in the job market and can’t find a job, suddenly that’s a big burden for that student and for that family,” Ferguson said. “How are they going to pay that back if they don’t have that job they thought a four-year degree would get them?”
Schools that purchase the coverage set the terms for students to qualify. “If the student graduates within a certain number of years, if they hit a certain GPA milestone and they’re actively looking for a job that will be, say, 30 hours a week,” Ferguson explained, the school will make loan payments on the student’s behalf for as long as his or her salary is below a certain threshold.
For example, a college could offer to make student loan payments up to $200 a month until his or her salary reaches $40,000 a year.
“This takes the burden off the student and it hopefully keeps their credit clean. As we know, defaulting on a student loan is darn near impossible, and that’s debt that people can carry for a long time. It could prevent them from purchasing a car or renting an apartment, those monthly bills that everybody has when they’re just getting started.”
Not every student has aspirations of earning $100,000 a year, Ferguson said. Some students just want to continue their education, or they choose career paths with more intangible benefits than money, like ministry or social work or art.
Ferguson said the program could make these payments until the loan balance is paid off as long as the student meets the criteria set by the school.
“Colleges want to buy this kind of coverage because statistics show that they will get more students,” Ferguson. “Everything being equal at two competing colleges, but one of them [offers] this HELP program they’d be more likely to consider going to a facility that has this in place.”
In addition to recruiting advantages, the program also helps colleges retain students, Ferguson said. “Colleges really don’t have any trouble retaining students when they get to be a junior,” she said, “but there’s a big drop off between freshman and sophomore year, and then between sophomore and junior year.”
The HELP program also provides reimbursement for college expenses if students can’t finish the semester. If a student is in an accident or falls ill, or if they have to return home to care for an ailing parent, the program will take over remaining tuition payments for that school year.
“It happens more than you would guess,” she said.
According to the 2016 Condition of Education report from the National Center for Education Statistics, 80% of full-time students enrolled at a four-year institution in 2013 returned the following year. Sixty percent of students who began a full-time undergraduate degree in 2008 graduated in six years or less.
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