For many students, the fear of student loan repayment stops college dreams in their tracks right there.
The student may get excited when their acceptance letter arrives, but then once they see their financial aid award and the loans they have to borrow…and they’re out.
How can colleges help take off the pressure of student loans?
Peter Samuelson, President at Ardeo Education Solutions, joins the Enrollment Growth University podcast to walk through the economics and enrollment impact of loan repayment assistance programs (LRAPs).
Understanding Loan Repayment Assistance Programs (LRAPs)
This LRAP story starts with Yale Law School.
Several decades ago,Yale didn’t have enough money to keep up with all the other top law schools. They wanted to better leverage their limited financial resources, and they wanted students to feel comfortable with the increasing amounts of student loans they were taking out. So they came up with this concept of an LRAP, a loan repayment assistance program.
“I went to Yale Law School back in the nineties,” Peter told us. “I personally felt the freedom that gave me to pursue my passions, to go where I wanted, and not make a choice that was driven out of fear and concerns about debts.”
Peter got to do human rights work in China and Sudan after graduation because Yale was making his loan payments. After returning to the U.S. and launching a traditional legal career, Peter got the idea of making Yale’s program available to undergraduate students.
“My mom taught at a small college,” he said, “with a very different student profile than Yale Law School, but they faced the same challenge.”
Like other small colleges, this one worked hard to get students to apply — only for those students to go elsewhere because they couldn’t afford the tuition without taking on massive debt.
How does an LRAP work?
The staff at Ardeo look at every school individually to decide if they want to underwrite them. Ardeo’s underwriting team has built a proprietary complex model that projects how the numbers are going to work.
Ardeo will work with any accredited institution in good standing that is also Title IV eligible. Both public and private institutions can qualify, and Ardeo will work with any major or program they have. Pricing varies. Schools with really low graduation rates pay more while those with higher rates pay less.
The upper income threshold is really a marketing question for the college. What do their students and families expect in order to be excited about attending that college?
LRAPs in the Real World
How do LRAPs work in practice?
Let’s start with the student who has applied to college, but they’re hesitant to come. Then the college gives them the LRAP for free and pays Ardeo. It’s an insurance-backed program. Ardeo collects a little money from a lot of different students and then helps those few students who really need help.
To take advantage of the program, students must meet three conditions.
- They have to attend the college that gives them the LRAP.
- They have to graduate.
- They have to be working, even if it’s a pay-the-bills job at Starbucks.
Two income thresholds come into play. If their income is below the lower threshold, usually $20,000, Ardeo reimburses them every quarter for 100% of their loan payments. As their income goes up from that $20,000 to the upper threshold, usually around $50,000, the benefit phases out. If their income stood at $40,000, they would be two thirds of the way up to the threshold and would pay two thirds of their loan payments.
How Institutions Can Benefit From LRAPs
Ardeo has worked with about 200 schools across the U.S. They’ve put about 25,000 students through the LRAP program. Over and over, the result is the same — LRAP changes a prospective student’s No into Yes.
Schools can increase their freshman enrollments, rebuild a major that they wanted to rebuild, start a new major, or increase the number of out-of-state students. A university’s strategy for enrollment includes a lot of different segments of prospective students. Some of those segments produce very low yield.
LRAP can help increase that low yield in any segment. Peter has seen schools increase enrollment by more than 20% using this strategy. It can boost enrollment overall or just in certain target segments.
Next Steps to an LRAP Strategy
Most institutions start by piloting the LRAP program with a small number of students to get a firsthand taste of how powerful the promise is.
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