College To Dangle Financial Incentive To Students Who Graduate On Time

In an effort to improve its 4-year graduation rate, the University of Texas at Austin has announced that it plans on testing a program that will provide a bit of student loan forgiveness to a handful of students if they can avoid falling into the “perpetual student” trap.

The pilot program will begin with a group of 200 UT-Austin freshman starting next fall. If these students meet certain benchmarks during the given time frame, a portion of their federal direct unsubsidized loans — which carry a 6.8% interest rate — will be forgiven.

The Houston Chronicle reports that the test will be divided into two groups:

[H]alf of the selected students in fall 2013 would be offered $1,000 loan forgiveness, plus interest accrued if they pass 15 hours of their degree requirements by the end of each semester.

The other half would be offered $2,000 in forgiveness, plus interest accrued, if they complete 30 hours of degree requirements by the end of an academic year.

In-state tuition at UT-Austin, where the four-year graduation rate is around 50%, is $9,792 per year. The average four-year student will borrow approximately $19,000. That number increases significantly for five-year students ($24,000) and for those who take six years to graduate ($31,000).

With student loan debt at an all time high and loan default rates on the rise, it’s important for schools to provide incentives to students to not rack up debt that could only end up being a huge weight around their ankles after graduation.

“If it proves successful and we extend the program over four years of enrollment, we estimate that the total amount forgiven will be a little more than $8,000 per student but that, in the long run, this will reduce the amount students must repay after graduation by more than $12,000,” explains UT-Austin’s director of student financial services.

Graduating in 4 years may help UT students save on loans [Chron.com]