Monday, July 14, 2008

The cost of higher educution and nonprofits

One of the concerns I have about nonprofits recruiting and retaining the best and brightest is the cost of higher education which, as a percentage of average family income, is an enormous barrier. Not only does it stress out current nonprofit staff who have kids and are trying to figure out how to pay for college, but for someone coming out of undergraduate or grad school with a $20k, $30k, even $90k debt, the ability to work in a low-paying nonprofit is severely limited.

The recent federal bill to "fix" this problem is a start, but a poor one. Basically, a 22-year-old has to go to work for a nonprofit, work ten years, and then she sees some minimal help. Ten years? Ten YEARS? Ten years for a 22 year old is half their life so far, at least the part they can recall. Not much of an incentive, particularly for the average 22 or 23 year old who is still figuring out their place in the world, where they want to live and work, and what their real passion is.

We've always used financial incentives to push people toward desired outcomes. Whether its the ability to deduct interest costs on your mortgage to encourage home ownership, had rapid depreciation allowances to encourage businesses to build, or drill for oil. Let's put together a real program that helps both students and parents.

More and more families are taking out loans, rates for loans are rising: student loans now cost 6.8% and parent loans 8.2%. Rates went up last year to help cut the deficit. And, private lenders have stepped back from lending given the mortgage crisis....

Here's my suggestion:

A student with a federal debt (in his/her own name or that of his or her family) goes to work for a nonprofit. During the year, the debtor pays only interest on the loan. After one year, if he or she does the job, 5% is cut off the principle. This continues moving forward for as long as the individual works for a (any) nonprofit. The second year, the forgiveness is 10%, where it stays for each of years 3-5 and then it moves up again to 15% per year until the loan is retired with one last 10% forgiveness in year 9.

Thus, the student receives immediate help (interest only) and a reduction in one year, not 10.
Will congress change the law? Unlikely.

So, what can communities do? Set up the same program locally with some variation. I'd love to see community foundations put money aside for debt reduction for employees at nonprofits, corporations and service organizations like Rotary and Lions set up scholarships for graduated students who work for nonprofits. Local governments could offer property tax relief to nonprofit workers buy homes in the community they work for, and state governments could target the areas where the most workers are needed and offer incentives as well.

We want well educated employees. We know we can't pay our employees salaries that are competitive with the for-profit sector, and we know that our mission-satisfaction makes up for that to a point. But mission-satisfaction can't help here: we have to come up with a better way if we want the best people.


Pete said...


Great post. I completely agree that we need to provide real loan forgiveness to people who choose to serve the public good through the nonprofit sector. I'd even like to see us offer that at the front end, when people start college, similar to the way ROTC scholarships make it possible for many to afford a college education in the first place.
Nonprofits not only trail the private sector, they also typically lag behind what government can offer. Many government employers already offer loan forgiveness, and beyond that can offer pension plans that far outstrip even what private employers offer, and other benefits that most nonprofits can’t yet match. The city of Claremont, Calif., for instance (at least according to remarks I heard by their city manager as of 2004), offered employees $850 per month to cover health and other insurance premiums; any money left over goes into a retirement account. In contrast, the average cafeteria plan contribution by reporting California nonprofits that year was $313 a month. Claremont also offered a separate match toward retirement savings, plus generous vacation, flex time, and professional development opportunities.
In case you're interested, I wrote more about this in a short piece for Stanford Social Innovation Review (
Again, thanks for this great post.

Richard said...

I agree with all you wrote, but I believe you are letting nonprofits off the hook too easily. It may not be realistic to match corporate or government salaries and benefits, but we can and must do better. If the cost of turnover was invested in higher salaries, we would all be better off.

BTW, American Humanics is doing something to combat student debt by offering $4500 internship stipends (the competitive NextGen Leaders program) and by partnering with AmeriCorps to help graduates earn education awards of up to $4725 that can be applied toward student loans or future education expenses.

tom2000 said...

The girls sing and laugh as Ms. Franklin takes turns doing their hair. On this Monday morning, they are getting ready for college.debt managementThe girls – Sherida Ward, 9, Sarah Ward, 8, Ayana Hysaw, 7, and Georgia Hysaw, 6 – are going to University of Texas at Dallas for Kids' University, a summer program that introduces homeless children to the possibilities of a college education.

Anonymous said...

Gotta agree w/ Richard. I'm a mid-career gen X-er who left the government sector nearly two years ago to join a nonprofit and have been shocked at how benefits are perceived in the nonprofit world. There seems to be a generation of nonprofit leaders who have bought into and perpetuate the concept that nonprofit employees should expect less salary and overall compensation because of the work they do. How do they expect to attract younger workers with families over time? Nonprofits small and large should explore every avenue to attract, retain and care for their employees. I ventured into this industry to do some good, but am re-evaluating this move not solely because of poor benefits, but because of this mentality and the shabby treatment it breeds.

credit savvy said...

i wish i had the time there pete
we need to provide real loan forgiveness to people who choose to serve the public good through the nonprofit sector.

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