How low-income students can avoid this college debt trap http://ift.tt/1qwrz4Z

This fall, millions of students stepped onto college campuses with dreams of degrees and the better lives that can come with them. For many, though, the journey won’t be easy: Six years after enrolling, some 30% will have left without graduating.

Some will get back on track. Others won’t. Either way, many face a hidden risk lurking in the thick book of regulations governing what happens to a student’s Pell grant — the money the federal government gives low-income students — if they leave school unexpectedly.

In the worst cases, they could wind up targeted by collectors hired by their colleges or blocked from switching schools until they pay the money back. Avoiding trouble can be tough, since most students who leave school in the middle of a semester do so because of a financial, family or other emergency.

The end result is often a vicious cycle that keeps financially vulnerable students from getting ahead.

“A lot of students, they don’t withdraw because they want to,” said JoEllen Soucier, the executive director of financial aid at Houston Community College. “It is because they have no choice.”

“A lot of students, they don’t withdraw because they want to. It is because they have no choice.”

JoEllen Soucier, executive director of financial aid at Houston Community College

How we got here

The reason students end up in this situation is a regulation, created in 1998, that now comes with more than 200 pages of guidance about how to implement it.

The policy, known as Return to Title IV, mandates that when a student using financial aid drops out before completing 60% of a term, any portion of the aid they haven’t technically “earned” from attending school must return to the federal government.

Schools sometimes return the money on behalf of the student, in many cases because the aid went directly from the government to the school. In cases where the student owes the federal government, the school often pays it on their behalf to protect the student from having a debt that could jeopardize their future aid eligibility.

The rationale for the policy is logical enough: A school shouldn’t hold taxpayer dollars on a behalf of a student who is no longer attending. In practice, however, a combination of inattention, confusion and poor communications mix with the realities of life for low-income students, putting them at risk after being pulled out of school for reasons often beyond their control.

That is because schools typically hold students liable for the money they must return to the government on their behalf if they want to return to the school or access transcripts so they can transfer — even if the students use Pell grants, which they aren’t typically required to pay back.

“The thing that is so pernicious about it is that it is not something that people are aware of when they take out a Pell grant,” said Vivé Griffith, the former director of Free Minds, an Austin-based organization that provides free college classes for low-income adults. “They’re trapped in this situation where money they didn’t have to begin with is now owed.”

“They’re trapped in this situation where money they didn’t have to begin with is now owed.”

Vivé Griffith, former director of Free Minds, an Austin-based organization that provides free college classes for low-income adults

Sabrina Ramos hoped to become a nurse when she used a Pell grant to pay for 18 credits of classes at the New York City College of Technology in the fall of 2012. Two weeks into the semester, Ramos, then 18, had to leave school to help care for her mother, who had been hospitalized due to schizophrenia.

The following spring, she received a bill for the $2,775 she owed the school over an unearned Pell grant, according to a letter her lawyer, Johnson Tyler of Brooklyn Legal Services, sent to the school in 2015.

Ramos, who at the time earned about $250 a week cleaning apartments, said in an interview late last year that she spent most of the money supporting herself and her son, and lived with her mother to control costs.

Representatives from City Tech said they couldn’t comment on Ramos’s case. They noted that they include financial aid guidelines in student orientation and explain the financial consequences of leaving school. They also said they have worked with students on payment plans.

But the school said it wouldn’t waive the fee and Ramos couldn’t re-enroll or enroll elsewhere until the debt was paid, Tyler said. Ramos said the debt was keeping her from continuing her education.

“I was really depressed about not being able to better myself,” Ramos said in the interview. “It is hard enough being a single mother in Brooklyn.”

Read more about students who leave school with debt and no degree.

Punishing the most at-risk students

Situations like Ramos’s are a side effect of a decades-old federal effort to standardize students’ withdrawal deadlines, an effect experts say led to new rules governing the timing of schools’ repayment of unused federal loan dollars.

In the nearly 20 years that Return to Title IV has been in place, it is morphed into a complex regulation financial aid officers say is a burden for both them and students — especially vulnerable ones.

“The hidden truth that all schools know is that [Return to Title IV] tends to affect/punish the most at risk students,” a task force convened by the National Association of Financial Aid Administrators said in a 2015 report. “It is the at-risk students who withdraw, and in many cases end up owing money they cannot afford to repay.”

“It is the at-risk students who withdraw, and in many cases end up owing money they cannot afford to repay.”

A 2015 report from a National Association of Financial Aid Administrators task force.

Read more about today’s college students.

In some cases, the trouble appears to be communication. While the rules are explained in the grant paperwork and elsewhere, the grants are typically framed by college counselors, financial aid officers and others as “free money.”

“They don’t know what they’re signing up for,” said Mike Larsson, the president of Match Beyond, an organization that coaches college students. “The Pell grant specifically is framed as a grant, when really it is a conditional grant.”

Financial aid officials say they try to explain the conditions up front. At Schoolcraft College in Livonia, Mich., administrators stay in touch with students once they’re in school to help them avoid leaving with a balance, said Regina Mosely, the school’s executive director of student financial services and financial aid.

We “try to be proactive and anticipate those critical communication points and ensure that [students] understand that if they have these balances they can affect future activities,” said Mosely.

And Houston Community College provides multiple alerts that a student may have to return their aid if they leave, displaying an online pop-up window when they try to withdraw from a class.

Even after warnings, life circumstances — such as family illness, work or child care issues — can put students in a bind. But when students leave before the 60% deadline, according to Soucier, they don’t have much choice in the matter, putting them in a “horrible” position.

Sandy Shugart, president of Orlando-based Valencia College, has been concerned about the issue for years. Shortly after Hurricane Katrina in 2005, he worked with a Congressman to pass an exception to the policy for victims of natural disaster, but he says that exception should go farther.

There is no single source of public data on how many students the rule affects each year, though it appears to be comparatively small: The 10 schools that were part of NASFAA’s task force said they return 1% to 2% of the federal financial aid — which includes both Pell Grants and other funds — as part of the policy.

Federal government data suggests that perhaps thousands are affected; some 7 million students received Pell grants in the 2015-2016 academic year.

But “when you’re one of the victims, it is huge for you,” said Shugart, who’d like to see schools and students allowed more options in other situations, including when the student leaves for an illness or a spouse’s military deployment. “It is creating kind of an exile from the institution when it may have been completely avoidable.”

Today, colleges have no leeway when it comes to returning the money to the government. They do, however, have flexibility in the way they work with the student after doing so.

Some schools will turn over the balance to a debt collector. Others may not chase the student if they walk away, but will require repayment if they want to return to school or transfer.

In 2014, Houston Community College began piloting a program called “Aid Like a Paycheck” that distributed financial aid in two-week installments. Doling out aid in smaller, more frequent increments, the school found, meant that unearned funds were rarely given to students who left. (But the pilot, which recently ended, also led to cash crunches for students who relied on getting aid in lump sums, Soucier said.)

When officials at Schoolcraft realize a student with financial aid has left the school with a balance, they’ll email them a bill and information about how they might be able to address the situation. The school may offer students the ability to settle the bill in installments.

In some cases, it will also provide an unofficial transcript, which may help students interested in transferring — though not all schools accept them.

The goal, Mosely said, is “to make sure that they get on that correct path right away.”

Staying out of financial trouble when you leave school

Leaving quickly can be unavoidable for many students. Some do effectively “disappear” on their schools, dropping out without making arrangements or explaining their decisions. Others, said Ean Freels, the financial aid director at Des Moines Area Community College, can be hard to reach, leaving schools with few options.

But there are steps students can take that can help make a decision to leave less costly.

Start by reading the terms of your aid carefully, experts say. “Don’t think that you can go three days, drop out and then no longer have a bill,” said Nancy Lee Sanchez, executive director of the Kaplan Educational Foundation, which advises low-income and underrepresented transfer students. “The minute that you walk into the college there is a fee.”

Begin each semester by studying the school’s academic calendar so that you know the best time to leave to avoid financial consequences, Sanchez added.

You should also build a team of knowledgeable advocates — it can include advisers, financial aid officers and professors — at the school when, or even before, you arrive on campus.

Those advocates can help navigate the system if you meet an unexpected challenge, said Sheri Gonzales Warren, the community, economic and workforce development program director of the Mid-America Regional Council, which works with adults looking to return to school.

“It adds validity to the individual and whatever trial it is they’re going through,” Warren said. “In every system, there is some discretion.”

Read more about ways professors are helping students in need.

If you do have to leave school unexpectedly, Warren recommends communicating with the school about your circumstances as soon as possible.

And don’t go into that conversation assuming the school is out to get you, suggested Warren. Instead, try to convey the sense that you’re trying to solve a problem and invite the school in on the solution. Even if you need to leave without discussing your plans with the school first, Warren said, contacting the school quickly may help you set up a payment agreement before the debt goes to a collector.

“Eventually you have to deal with it,” said Warren. “The longer you wait, your options become fewer.”