02/08/2013 12:54 pm ET

Spring Arbor University Will Help Struggling Graduates Repay Loans

Spring Arbor University, a small liberal arts school in Michigan, has announced that it will offer loan repayment assistance to its incoming class if students can't land steady employment after graduation, according to a release posted to its Facebook page.

President Charles Webb says in the release that the program offers "peace of mind" to those who might otherwise not attend college for fear of incurring too much debt in an uncertain economy.

Next fall, the school will automatically enroll freshmen in a loan repayment assistance program that offers the university's support if students and their families have trouble making loan payments. After graduation, students must work 30 hours per week, and if their incomes don't rise past established benchmarks, the program kicks in until students make more or pay off the loan.

The program was announced weeks after the millennial unemployment rate hit 13.1 percent, compared to a national rate of 7.9 percent, according to the January jobs report from the U.S. Department of Labor. Unemployment has risen sharply among Americans aged 18 to 29, up from 11.5 percent in December 2012 and 10.9 percent in November.

Even when graduates do find jobs, they must use a portion of their entry-level salaries to pay back record student loan debt. A 2009 Yale study said students who graduate into a down economy can expect lower wages over 20 years. CNN adds that two-thirds of the class of 2011 graduated with student debt. Borrowers owed an average of $26,000, which was up 5 percent over the average debt in 2010.

Moody's Investors Service downgraded the higher education sector's 2013 outlook to negative, citing diminished consumer interest and price sensitivity to net tuition.

Moody's adds, "The rising burden of loans on students and increase in student loan defaults is also negatively impacting universities, leading more people to question the value of a college degree. Most universities remain well below the threshold for being cut off from federal aid because of the rate of students default."

The Spring Arbor plan could mitigate the concerns of prospective students and buoy consumer confidence in the value of its degree programs.

The Spring Arbor plan is also softer touch compared to some larger institutions' recent practice of suing alumni who have defaulted on their student loans. Bloomberg News reports that the University of Pennsylvania, Yale and George Washington University have sued graduates for nonpayment of Perkins Loans, which are administered by colleges. Bloomberg reports that students have defaulted on nearly $1 billion nationally.

U.S. News and World Report ranks Spring Arbor University 60th among regional universities in the Midwest, and estimates that students who received no scholarships or financial aid paid $22,538 for 2012-2013 tuition. In 2010, the school of about 4,000 students had an acceptance rate of 71 percent.



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