Students finish college anchored to loan debt

CHICAGO — A college education used to be a ticket to a secure future. Now, a generation of students and graduates is walking off campus with a collective $1 trillion in student loan debt and troubling career prospects. The daunting combination is forcing them to rethink their futures, postponing weddings, home purchases and vacations to make hefty monthly payments on loans that will follow them into middle age.

It's a financial and emotional strain their parents didn't have, or at least not to the same degree. Just two decades ago, fewer than half of undergraduates finished school with debt, and the average was less than $10,000. This spring, two- thirds of graduates are expected to have debt, owing an average of $29,000. In fact, student loan debt now exceeds the country's credit card debt.

Addressing the outcry heard from Occupy Wall Street protests to kitchen tables in the Chicago area, President Obama last week sped up plans to help graduates dig out. Some borrowers will be able to lower their maximum required payments starting next year, with balances forgiven after 20 years. Borrowers will also have the chance to consolidate loans at a lower interest rate.

But even those proposals may mean only modest help, and won't help those who've already defaulted.
And future students could face even heavier financial burdens. The cost of going to college has risen faster than inflation, home prices and even health care costs. Tuition at the average public university is up 8.3 percent this fall, and 123 colleges now charge $50,000 or more for tuition, fees, and room and board, according to data released last week.

While a college degree will lead to significantly higher earnings over a lifetime, the unemployment rate for recent graduates is more than 10 percent.

"What we know is it is impacting so many people," said John Pelletier, director of the Center for Financial Literacy at Champlain College in Vermont. "I think many of them have been surprised, as have been their parents. There are many of them like the folks who may have gotten into mortgages they regret and don't understand."

An ongoing bill
 
That's true for Steven Kent, who graduated from Loyola University Chicago in 2009 with a journalism degree and $49,000 in federal student loan debt. His payment notices asked for at least $650 a month, he said, more than his $533 rent.

Kent, 27, is working at a Starbucks where he earns about $1,500 in salary and tips a month. He hasn't paid back a penny of his loans.

"I didn't have an expectation that it would be this ongoing bill I would carry forever. I thought it would be like a utility bill, not another rent payment," said Kent, whose deferment ends in April. "It is like having a ticking time bomb around your neck."

Laura Perna, an education professor at the University of Pennsylvania, said that while most students borrow reasonable amounts of money, an "important share of the population" has excessive amounts of debt.

"This is a relatively new phenomenon," Perna said. "For those students, it is influencing many dimensions of their post-undergraduate life."

In 2005, when the advocacy group Project on Student Debt began, there was so little attention to the issue that founders couldn't decide on an organization name. "There wasn't the term 'student debt,' " said Lauren Asher, president of the Institute for College Access and Success, the home of the debt project. "There was so little awareness of how much our higher education system had changed and how heavily it had come to rely on student debt."

"College is still the best investment you can make in the future and our country's future," Asher said. "But like any investment, the returns are not guaranteed."

A 'scary thought'
 
Nija Fountano is in college, but she's already, little by little, paying off her student loans.
About $60 a month goes toward a loan payment, money earned from the two jobs she has in addition to going to school full time at the University of Illinois at Chicago. She expects to graduate in the spring with $30,000 in private and federal loan debt.

"That is becoming an increasingly scary thought because I don't have any savings," Fountano said. "I don't know if I would say it weighs on me daily, but having such a tight budget and living paycheck to paycheck is a stress on its own."

An urban-planning student, Fountano, 21, is postponing graduate school plans until she feels more financially secure. She works at Whole Foods and as a gymnastics instructor, and she hopes to get a job related to her field of study after graduating.

"Was it worth it? It is definitely worth it, but it is really difficult, and sometimes when I think about it, I wonder if maybe I could have done it differently," she said.

No buying a house 
 
Like many young married couples, Jessica and Ian Riley share everything they have, including $30,000 of student loan debt.

She still owes about $21,000 on a loan she took out to pay for the Western Michigan University bachelor's degree she received in 2006. The debt eats $400 from her monthly pay.
He owes $9,000 for a semester of an online course he took from Ashford University. He pays $627 a month.

"It definitely changes, like, your whole mind frame of things that you do, and not getting any more credit cards, or not accruing any more debt," Jessica Riley said. "We have rented for 11 years. I would love to own a home, but honestly I don't see that happening."
The Rileys, both 29, say they wish the federal government could do something to lower interest rates or offer more flexible repayment plans.

"Just give graduates some kind of solution," she said. "We want to pay our debt, but it needs to be a reasonable manner where we can eat and breathe and be happy."

Working two jobs
 
Natalie Quist, 28, doesn't look at the statements on her student loans anymore. They make her queasy.
She's well aware that she owes $13,000 on a federal loan and $19,000 more to a private lender.
The debt, which requires $500 in payments each month, forced her to take a second job, never mind that neither it nor her first job is related to psychology or criminal justice, her college majors.
"I wouldn't say my degree is useless, but it doesn't get you as far as you thought it would," said Quist, who graduated from Loyola University Chicago in 2006.

Because of the debt, Quist doesn't have a car. She'd also like to go to graduate school, but she doesn't dare add to her loan balance.

Still, Quist considers herself lucky in some ways. She would be worse off, she said, had she not gotten a $36,000 academic scholarship to reduce her tuition bill. And she knows the price of higher education has only risen since she got her diploma.


"It's probably worse for kids entering college right now," Quist said. "I can't imagine."

Alabama college grads average $24K in debt

A new study shows that graduates of Alabama colleges in 2010 averaged $24,821 in student loan debt when they left school, making Alabama the state with the 14th-highest debt average.

The study, “Student Debt and the Class of 2010,” is conducted by The Project on Student Debt, an initiative of The Institute for College Access & Success. The organization has conducted similar studies since the 2000 to 2001 school year. Results indicate that the average debt burden for Alabama college graduates has increased during that time.

Those who attended the University of Alabama averaged $26,701 in debt, while Auburn University grads had an average of $23,491 in debt.

The study also listed Alabama A&M University ($31,863) and Alabama State University ($29,795) on its national list of high-debt public colleges and universities.

Auburn University’s average student loan debt has ranged from $18,069 to $34,398 since the study was first conducted.

Chris Christian, a 2004 AU graduate who now lives in Gadsden, said he worked full time throughout college and saved money by attending junior college for two years. Despite that, he still accrued about $12,000 in student loan debt by the time he graduated. He’s still paying off his loans, but only by choice, he said.

“I would have to say that a possible reason Alabamians acquire more debt is that they don’t know of other options to fund school other than student loans,” Christian said in an email to the Opelika-Auburn News.

Data also shows that Alabama had the highest average student loan debt in 2010 compared to its four neighboring states: Florida ($21,184), Georgia ($18,888), Mississippi ($22,142) and Tennessee ($19,957).

Mike Reynolds, Auburn University’s executive director of student financial services, attributed part of the disparity between Alabama and its neighbors to the presence of scholarships funded by lotteries or casinos in those states.

With a large proportion of out-of-state students at AU, Reynolds said they sometimes resort to taking out private loans with high interest rates to cover expenses and tuition.

“We certainly want students to reach their higher education goals, but we’re very cautious to explain to them about student loan debt,” Reynolds said. “Is the profession that you’re wanting to get into, is it going to allow you to pay back $90,000?”

Nationally, the study estimates that two-thirds of college students who graduated in 2010 had student loan debt. The average debt was $25,250. At the campus level, average student loan debt for schools ranged from $950 to $55,250.

The study examined data from just more than half of public and private nonprofit, four-year schools. The study says it represents three-quarters of 2010 graduates.

Paying For Education

THE ISSUE: Calling it the “Pay As You Earn” executive order, President Obama has made it easier to repay student loans.

Calling it the “Pay As You Earn” executive order, President Obama has made it easier to repay student loans.

Consider that the $99,716 median household income for families headed by a four-year college graduate in 2010 was more than twice the income for those headed by a high school graduate, according to Trends in College Pricing.While those are nationwide averages, the trend also applies to a state such as Alabama, where too many people struggle to survive on low-wage jobs.


While it’s popular for political leaders in our state to be proud of low taxes, the continued reductions in state funding for higher education and the subsequent tuition and fee hikes are nothing more than a tax on college students and their parents. Shifting the cost of higher education from direct government funding to student loans makes about as much sense as treating an uninsured patient’s sinus infection in the emergency room.

Many students are dealing with this situation by borrowing more money, and a growing number are not able to repay it under the current rules. Almost 9 percent of students could not pay back their loans in 2009, up from 7 percent the previous year. The default rate in Alabama is even higher, at 9.2 percent.

To make it easier for college graduates to repay their student debt, President Obama recently issued an executive order accelerating the implementation of new rules that Congress had intended to begin in 2014. Given the economic state and the reluctance to adequately fund higher education, that is a good move.

The present law caps monthly payments at 15 percent and forgives outstanding loans after 25 years. The president’s order caps it at 10 percent and offers forgiveness after 20 years. It also allows students to consolidate federally backed loans to reduce interest rates.

Obama said the plan will save money by eliminating banks as the middle man for student loans.
It’s a small step, but every penny counts for the thousands of families who live just one pay check from ruin.

Students who borrow money have a responsibility to spend it wisely and repay it on time. Unfortunately, some students waste student loans on housing, cars and entertainment when they could work part time or live at home to cover those expenses and limit the borrowed money for tuition, books and fees.

But as long as political leaders are not willing to provide adequate funding through taxation, the student loan program will remain the emergency room for higher education.

Student loan terms change ?

President Barack Obama announced on Oct. 25 that his ‘Pay As You Earn’ executive order would take effect two years earlier than expected. The executive order prescribes a revised repayment schedule for borrowers of federal student loans, which are optional supplements designed to help students pay college expenses.

The order, initially scheduled for 2014, will provide immediate relief to student borrowers, giving them a chance to limit loan payments to an amount equal to 10 percent of their discretionary income, starting in 2012. As current law dictates, unpaid debt will be forgiven after 20 years instead of 25 years.

With the average amount of student loan debt exceeding $9,000 per year, Obama expects ‘Pay As You Earn’ to save student borrowers by decreasing monthly student loan payments.
This order will provide an estimated 6 million borrowers with more manageable monthly payments by capping their loan payments at 10 percent, according to the White House press office.
LCC students — even those unaware of the proposal — responded with optimism.

“I think it’s very important that we address the issue of student loan debt. It’s more important than ever (that Obama enacts) a reasonable program for people to pay back their loans. A lot of students struggle with their student loan debt,” said Random Butler, a second-year LCC student. “Steps need to be taken to assist those who are having difficulty paying for their education, especially since education is something that was reportedly meant to improve their lives and financial situation.”
Butler is $10,000 in debt from student loans. His current interest rate on his unsubsidized student loan is 6 percent, and his subsidized student loan interest rate is 3 percent.

“I predict that it would offer a slight incentive for new or returning students to go back to school, if they feel that their future debt is going to be more manageable,” Butler said. “I would expect that it would have a minimal, but measureable, impact on enrollment.”
About two-thirds of graduates with a bachelor’s degree have student loans, according to the College Board Project on Student Debt. While the average debt is about $24,000, 10 percent of undergraduates have loans of $40,000 or more, according to the Department of Education’s National Postsecondary Student Aid Study.

For many students, the promise of profitable future employment serves as an incentive for this investment in the future. However, the monthly payment rate on student loans goes up based on annual income. For student borrowers making less than $20,000 a year after college, the government will pay a portion of their minimum loan payment for them.

“I’m hoping if I get a decent job, I can afford to pay it faster. I would imagine it would be even more of an impact (on students getting two-year degrees) because they’re going to have a shorter turnaround to pay it back,” said Stephanie Martin, who transferred to the University of Oregon two terms ago. Martin currently owes approximately $35,000 in unsubsidized and subsidized loans.
Martin is not alone in feeling unnerved about the payment of loans and thinks there should be more options available to students.

“School is going to cost a lot, whether the ‘Pay As You Earn’ proposal will help you or not,” said first-year LCC student Kyra Giffen.
Although Giffen believes this proposal will increase enrollment and loan disbursements, she currently has two student loans, totaling $5,000, and is aware that loans will “add up.”

Recently, the political action committee MoveOn.org recommended student loan forgiveness as a means to stimulate the economy. Another website, thepetitionsite.com, accrued 54,322 signatures (of a 55,000-signature goal) on a petition asking the government to forgive student loan debt. The Department of Defense used the promise of forgiveness to bolster recruitment among students at University of Vermont-Burlington in 2010, according to a report in Debt magazine.
Two LCC instructors, economics instructor Phillip Martinez and social science instructor Stephen Candee, agreed such reasoning is sound.

“Students with debt will have more money in their pockets, and less debt — more money to spend on housing, food, necessities, etc.,” Martinez said.
“I think it’s a great move,” Candee said.

Candee contrasted this with Libertarian presidential candidate Ron Paul’s recent proposal to abolish both the Department of Education and student loans.
“This is a much better approach, being realistic about people’s ability to pay. … Colleges are going to suffer as the result of (defaults),” he said. “If consumers can spend more, then production can increase, and jobs can increase, so there’s a ripple effect to all of this.”