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Some Colleges Step Up to Ease Students’ Debt Burden

Some Colleges Step Up to Ease Students’ Debt Burden

About 100 mostly liberal arts colleges offer help with loan repayments to graduates

By  DOUGLAS BELKIN

March 27, 2017 6:17 p.m. ET

When Natalie Dunn was a senior in high school, she was torn between two colleges—but only one offered anything close to a money-back guarantee. So she picked Adrian College over the less-expensive Central Michigan University.

The private liberal-arts school promised it would cover some or all of her student-loan payments, depending on how much she earned after graduation, up to $37,000 a year in salary.

“It tipped my decision,” said Ms. Dunn, now a 20-year-old junior studying radio broadcasting who will owe about $40,000 in student loans when she graduates this year. “In my field, there is no guarantee of landing a high-paying job out of college, so the prospect of having at least some of my loans paid is a real relief.”

The federal government hands out more than $100 billion to students to attend college every year. Schools are paid from this vast pool and students are on the hook to pay it back—creating a growing burden for many and a drag on the economy when crushing student debt suppresses spending on other things. Now, with programs like the one at Adrian and several other colleges, there is a growing movement for schools to share some of that burden.

“This program says schools are willing to put their money where their mouths are,” said Jim Kapnick, chief executive of the Kapnick Insurance Group, which helped design the AdrianPlus, the school’s loan-repayment-assistance program.

About 100 schools—mostly liberal-arts colleges—are now offering a variant of this guarantee through an Indiana company called LRAP Association Inc. The company sells programs similar to insurance policies to schools for an average of about $1,300 per student, said LRAP President Peter Samuelson.

The school buys a policy from LRAP for some or all of the students in a class. The terms of the policies are different but in general, if the student has graduated and is still earning below a certain amount in salary, LRAP cuts the student a check to help cover their student loans. Usually there is a sliding scale, so if a student is earning less LRAP would pay more.

The idea, which has been around since at least the 1980s, first gained traction at law schools where the debt-to-first-year-earnings ratio can be especially high. Similar guarantees are now spreading among coding boot camps and other for-profit technology schools where job-placement rates are high. 

Davenport University in Michigan offers an employment guarantee for certain accounting, nursing and network management majors that offer students the chance to return to campus for as many as 48 free credits if they aren’t employed in their field within six months of graduation.

The deal has been in place since 2014 for accountants; none have returned to school so far. Part of the reason is the strict eligibility criteria: Students must graduate within six years with a 3.0 grade-point average, complete an internship and work with the career-services department.

“We want to make sure all of our degrees lead to careers and we are holding ourselves accountable to that,” said Robin Luymes, a spokesman for Davenport.

Last year, Newberry College in South Carolina spent nearly $400,000 to buy an insurance policy from LRAP to cover its students’ loans if they earn less than $40,000 after graduation. The policy helped boost enrollment by 12%.

“We would not have been able to do it if we did not expect to see a jump in enrollment,” said Newberry College President Maurice Scherrens. He said the parents were generally more excited about the deal than their children.

In 2015, Sen. Lamar Alexander (R., Tenn.), chairman of the Health, Education, Labor and Pensions committee, called for “market-based accountability policies that require all colleges and universities to share in the risk of lending to student borrowers” in a congressional report.

Lawmakers have since filed many bills addressing the subject but the debate in Washington has stalled. It is expected to be picked up later this year when Congress considers reauthorizing the Higher education Act.

Schools are leery of the additional cost—and oversight.

The American Council on Education, which represents more than 1,700 college presidents, warned that proposals would cost a lot of money and “penalize all students and institutions in an attempt to address the behaviors of a handful of bad actors.” Financial aid experts are skeptical of what is on offer, so far.

These guarantees “always sound better than they really are,” said Mark Kantrowitz, vice president at Cappex, which specializes in matching students and colleges.

At Adrian College, and most other schools with the guarantee, graduation is necessary to qualify. So is holding a job that involves at least 30 hours of work a week. Ms. Dunn said after she started school she pretty much forgot about the guarantee until she was reminded of it by friends who graduated before it was implemented. “They said they wished they had it,” she said.

The idea for the program, launched in 2014, came to school President Jeffrey Docking when he was talking to another school president who offered the program for students interested in entering the ministry.

“I thought, ‘Why not roll this out to everyone?” Dr. Docking said. Initially, the plan cost the school $1,100 per student and covered $70,000 in debt. That cost has since been reduced along with the benefits; it now covers two years and is capped at $6,600.

“This is designed to be a bridge,” Dr. Docking said, to give students a little extra time to find their footing when the get out of school.

Write to Douglas Belkin at doug.belkin@wsj.com

Cover Photo Credit: Natalie Dunn works inside a recording studio in Adrian College, Howell, Mich. The college junior says she picked the school for its offer to help with loan repayments. PHOTO: MELANIE MAXWELL FOR THE WALL STREET JOURNAL

Appeared in the Mar. 28, 2017, print edition as 'Colleges Offer a Degree—and a Guarantee.'