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					      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



40%
                           tuition and fees alone at
                           private and public
                           universities grew by 40
                           percent and 33 percent,
                           respectively. By comparison,
                           the median family income
  Private                  increased by only 12
                           percent.”
Universities                    (Cappannari, 2002)




33%                          12%
 Public                         Average
Universities   1993-2003     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              337,000
Professional
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%
                                            6.00%


   Federal      Credit Card      PLUS       Private Loan
Student Loan

                  (King and Bannon, 2002)
                                     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)
                          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 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)
                                    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 debt-
related 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

                    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

				
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