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Published: Nov 24, 2021 14 min read
Graduates walk out of the 2021 Commencement ceremony at MidAmerica Nazarene University
Christopher Smith / MidAmerica Nazarene University

For about three decades, Lyon College students have taken an Honor Pledge each year where they promise not to cheat or plagiarize. This year, the college is making its own pledge back to students: Enroll here, and we’ll help you pay off your student debt down the road.

The small liberal arts colleges in Batesville, Arkansas, has started a loan repayment assistance program, dubbed the Lyon Pledge, through which graduates who don’t land a job with a decent salary will get a check to cover their student loans.

“Concerns about cost and loans can be a barrier for students,” says Matt Crisman, executive vice president at the college. “We were looking for a way to assist students and their families, to help them afford a liberal arts education in this area.”

In doing so, Lyon joins a group of nearly 200 colleges around the country that now help repay some students’ debt after graduation. In the face of growing apprehension over the reliance on loans to pay for college, many institutions are taking a more proactive role to try to limit the burden of student debt, whether by increasing grants to make debt-free degrees a reality or through policies that make borrowing less risky, like these loan repayment programs.

Think of them as college with a (limited) money-back guarantee: If you borrow (then graduate and get a job), you’ll get a hand paying your student loans if your salary falls under a certain threshold, typically around $45,000.

To offer its pledge, Lyon partnered with Ardeo Education Solutions, an Illinois-based company that runs similar loan repayment assistance programs, frequently called LRAPs, around the country. Colleges pay a fee to Ardeo, typically about $1,000 per borrower, but the programs are free to students.

“There are some students who are just nervous about student loans,” Ardeo founder Peter Samuelson says. “That’s where LRAPs really work.”

How do loan repayment assistance programs work?

Many of Ardeo’s roughly 180 college clients offer the loan repayment guarantee only to select groups of students, often based on academic areas or demographic groups they're looking to recruit. About 15% offer it to any student who borrows.

At Lyon College, more than four in 10 students qualify for federal grants, and nearly every student receives a scholarship from the college that lowers the cost of attendance. Yet 70% of students still take on loans, borrowing an average of $25,300, not counting private loans or parent loans.

Courtesy of Lyon College

After graduation, there’s a sliding scale to qualify for help. Details vary by college, but at Lyon, graduates who earn less than $20,000 will have their entire payments covered. After that, the share of monthly payments that is covered decreases as salary increases, capping out at $44,000. The average salary of a recent Lyon graduate, according to federal statistics, falls between $25,000 and $30,000.

The programs work like an insurance pool — a college pays in for the borrowers it wants to be covered, and years later, Ardeo can afford to pay out for those who need it because not everyone will. Ardeo’s models forecast that, across all its clients, between 25% and 35% of borrowers will meet the income qualifications for assistance in any given year. There's no cap on how long a graduate can get help, so long as their salary remains below the earnings limit.

Qualifying graduates have to pay their loans each month and then submit proof for quarterly reimbursement checks from Ardeo. Federal student loans, as well as parent PLUS loans and private loans, are covered by the guarantee.

The idea for LRAPs dates back to at least the 1980s, when it was introduced at law schools, where the programs are still very common. But the offer is much newer at the undergraduate level. Tufts University has had a donor-funded LRAP since 2009, through which it awards about $475,000 a year to graduates who apply.

Otherwise, most undergraduate LRAPs today are run through Ardeo, which launched in 2008. While Ardeo has so far worked primarily with small Christian colleges — often schools with fewer than 1,000 undergraduates — it recently signed on its first public college, the University of Wisconsin-Platteville, as well as Butler University in Indianapolis, which enrolls about 5,000 undergraduates.

Colleges use LRAPs as a recruitment tool

Ardeo promotes LRAPs as a safety net for students and an enrollment tool for colleges, a marketing opportunity that can help attract new applicants or sway those who’ve been accepted but not yet enrolled. An internal study by Ruffalo Noel Levitz, an enrollment consulting firm, found that 16% of students at eight institutions that work with Ardeo would not have enrolled in that specific college without the LRAP offer.

At MidAmerica Nazarene University (MNU), survey results are even stronger. Between 20% to 25% of respondents to university surveys say MNU would not have been affordable for them if they weren’t able to rely on the Pioneer Pledge, the university’s loan repayment assistance program.

The private college in Olathe, Kansas, enrolls just under 900 students and three-quarters of them borrow to pay for college costs. About half of those who take out a student loan also take out an additional loan, whether that’s a private loan or Parent PLUS loan, says Drew Whipple, associate vice president for enrollment management.

Starting next year, when freshmen up through seniors will be covered by the guarantee, the university will spend about $300,000 to give students who borrow some peace of mind about being able to afford their future payments.

“We want to protect the students who don’t have as much of an earning potential as others, or who choose to take lower-paying work because it’s what they’re passionate about,” Whipple says. The university wants to send graduates out into the world with a mission to do good, and it doesn’t want student debt standing in the way of that, he adds.

For Abigail Skofield, a loan repayment assistance program made Huntingdon College in Indiana feasible for her family. The private Christian college was more expensive than the public university she attended for a year, but it was also a better fit for her.

She knew she wasn’t destined to earn a lot of money with the subjects she wanted to study, so without the guarantee, the cost would have been a dealbreaker. She graduated in 2017 with a degree in cross cultural and theological studies, a minor in teaching English as a second language, and a debt burden of about $90,000.

Now 26, Skofield has used her reimbursement checks from Ardeo to cover a variety of expenses, but mostly, she's used the money to pay more toward her loans to cut down the length of her repayment term.

“It’s made a huge difference,” she says. She now owes about $50,000 on her debt.

Should colleges fund loan repayment assistance or more money for scholarships?

Courtesy of Pacific Lutheran University

Ardeo sets the fees it charges colleges based on an actuarial model that weighs the mix of majors at the school as well as student borrowing and outcomes. Across the company’s clients, annual fees range from about $600 to $2,200 per student.

Colleges do sometimes say the programs are too pricey. But Samuelson says Ardeo aims to straddle a line where it keeps the fee manageable for colleges, while charging enough so that it can support substantial benefits to students who end up needing it.

Officials at Pacific Lutheran University review every year whether the money they’re spending on the college’s LRAP, which has been offered to most incoming students since 2018, would be better spent instead on scholarships.

And so far, officials at the Tacoma, Washington campus have decided the loan repayment assistance program is the right choice.

“We think this is something that can benefit them more financially in the long run, rather than a small scholarship while enrolled,” says Mike Frechette, dean of enrollment management and student financial services.

If the college were to spend the money budgeted on the LRAP on scholarships, it’d mean an additional $1,000 scholarship per student.

“It’s nothing to sneeze at,” he says. “But it’s not going to eliminate their need for borrowing.”

Molly House, a sophomore at Pacific Lutheran, learned about the school's LRAP when she was filling out her financial aid forms ahead of her freshman year. She says she's lucky enough that her parents had college savings to cover her first two years without her needing student loans. But she will have to borrow for her final two years.

When she started college, she wasn't sure exactly what she wanted to do. With a double major in philosophy and gender, sexuality, and race studies, she now plans to go to law school. But she found the guarantee ideal for someone like her, who wasn't sure where she'd work or how much she'd earn after graduation.

"Just knowing that it’s there helped me find freedom in not knowing what I wanted to do," she says.

LRAPs are a form of risk insurance

Still, there are limits to the programs. For one, the repayment assistance only applies if you’ve graduated; something that nationally, as many as 40% of students don’t achieve within six years. Student debt researchers have long stressed that those who suffer the most dire consequences of unaffordable debt are those who leave college before finishing their degree.

Even if you do graduate, there’s only help available when you’re under the earnings threshold set by your college. Once you out earn that, you leave the program, and should you later lose your job or take a lower-paying job, you don’t fall back under the protection of the program. Plus, there's not any cost-of-living adjustment, so if you attend college in a more affordable area but move to an expensive city, you may phase out of the guarantee quickly.

But loan repayment assistance programs still make for a promising effort at mitigating the risk students face when they borrow, says Ethan Pollack, director of Financing the Future, an initiative from nonprofit Jobs for the Future that focuses on innovative ways of paying for postsecondary education.

“If you were asking someone to invest five or six figures in anything else, you’d probably buy insurance for it,” Pollack says. College is an exception.

“You’re just stuck with this liability if it doesn’t work out,” he says.

College did work out for Bri Gallagher. She chose to attend Spring Arbor University, a small liberal arts college in Michigan, over a public school in part because the loan guarantee helped her and her family feel more confident borrowing more to attend her first-choice school.

She studied English, made valuable connections, got a couple internships and eventually made her way to her dream job: working for a book publisher. She doesn’t know if it would have been possible without the LRAP.

Gallagher, who’s now 26 and an acquisitions editor at Harper Collins, borrowed $80,000, and the loan assistance was a lifeline when she was working low-paying jobs right out of college. It allowed her to move to Colorado and pay her bills while working as a copy editor at a non-profit organization.

She used the assistance for a year and a half before her salary grew too much to qualify, and she paid off the last of her loans in June of this year. It was a short time, but if she hadn’t had the help, she says she wouldn’t have been able to take the job in Colorado, and then she may not have gotten the job she has now.

“Having that money meant that I got to keep living out there, keep working toward my dream."

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