College Affordability: AU and Your Educational Goals
AU Trend: Low Default Rates, Declining Average Indebtedness
Understanding the cumulative, long-term impact of loan choices is imperative
Choices you make will impact your financial future
Media reports have sensationalized the student debt problem, but the borrowers depicted in these stories are not representative of the typical undergraduate student at American University. As you plan for your education and future, we want to help students and families make smart choices and take charge of financing their education. One important step is to understand the cumulative, long term impact of federal vs. private loan choices, compared with other choices, prior to taking on loan obligations. Another is to understand the myths are not supported by the facts.
Average loan debt for AU students is decreasing
Good news. The average loan debt for the graduating class of 2014* is $32,500, a decline of 21% from a high of $40,966 for the Class of 2009. The 2014 average debt figure brings the average back to levels prior to 2009.
Understand the numbers
AU’s reported average debt for loan borrowers at graduation ($32,500) for the class of 2014 is lower than the national average of $33,000. Forty percent of the class of 2014 did not take out any loans to finance their education and graduated debt-free.
Understanding your financial situation will help you make better long-term choices regarding loans as you pay for your college education.
Elective borrowing affects borrowers’ average debt
Several years ago, we identified a big problem for a small number of students here at American University and began a focused financial literary campaign to encourage students to make educated decisions when financing their education.
A large contributor to the issue of high average debt for AU grads is elective borrowing—private loans taken outside of the federal financial aid process. A small number of students who chose to take out private loans, many of whom didn’t even apply for financial aid, drastically skews the student loan indebtedness average for AU’s graduating class. On average, these few borrowers take out private loans averaging two to three times the rate of federal borrowers. As a result of greater awareness, financial literacy, and more informed choices, the number of students taking private loans and their average debt is declining.
Should you take out private loans? The best way to know is to apply for financial aid. Last year, one in four AU students who borrowed through private loans did not demonstrate any financial need and/or did not even apply for financial aid. Students who only borrow through federal loans have a lower average indebtedness at graduation.
Next, understand the cumulative effect of all loans you take on your monthly obligations after graduation. We’ll help you find resources to improve your financial literacy about loans and debt.
How much should you borrow?
The Consumer Financial Protection Bureau (CFPB) provides guidelines that suggest that students should borrow “only what your future earnings will allow you to repay.” The CFPB’s rough estimate is for students to not take on more debt that their expected annual starting salary. Using that guideline, “your payment would be nearly 14 percent of your gross monthly income” given the current interest rate for federal student loans.
Utilize the tools and resources available to you
Student debt, loan rates and college affordability have captured the media headlines, but know how loans will affect you personally and don't let the headlines consume you. There are helpful tools and resources to guide students in understanding their options for a lifetime of financial well-being.
On this page, we’ve included some of these tools to help get you started. And, as always, if you have questions or concerns let us know. For current students AU Central is the best place to start; for prospective students contact the Financial Aid Office.
Five Facts to be in the Know
1. According the Consumer Financial Protection Bureau, a majority of students who took out private loans had not exhausted their federal borrowing options.
2. The Department of Education released an interactive loan counseling tool that estimates the monthly payment for all of a student’s total loans, and provides financial management basics covering topics from managing a budget to avoiding default.
3. The 60% of borrowers in the class of 2014* who used federal loans only graduated with an average debt of $23,574. The national average is $26,600* according to Project on Student Debt (Oct. 2012).
4. The average debt for the 12.4% of the graduating class of 2014, who chose to borrow private loans, was nearly twice the amount ($45,249) than those borrowing only federal loans.
5. Traditionally, AU’s loan default rate among its students has been below 3.3%, vs. 13.7% nationally (3-year default rate for class of 2011).
*Each fall, statistics for the previous year’s graduating class are publicly released.
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