Digging to the bottom of debt

Student loans, tuition rates fueling growing national concern over education costs

I’d like to talk about debt. For my parents’ generation, debt was something not to be spoken of. Debt was private, even shameful. But recently I’ve become aware that more and more people, including the 2012 presidential candidates, are beginning to talk about a rapidly growing national problem: student loan debt.

For the past four years I have been paying off about $13,000 in undergraduate student loan debt; this year I added another $6,500 in graduate school debt. These numbers may seem high or low, depending on whether or not you went to college; where you went; if your parents offered assistance; and what kinds of loans you did or didn’t take out to support yourself.

My loans are actually modest in comparison to some of the loans taken out by my friends. Yet I sometimes struggle from month to month to make payments when I have the additional cost of rent, gas, and food to worry about. It turns out I’m not alone this challenge.

This year, national student loan debt rose above $1 trillion, surpassing both credit card and auto loan debt. Two weekends ago President Obama addressed students at the University of North Carolina and University of Iowa, promising a continuation of the 2007 federally subsidized Stafford loan rate reduction from 6.8 to 3.4%, which has provided temporary relief for millions of students like me. Obama also offered his own experience with student loans as reassurance that he would tackle skyrocketing student loan debt in his next term as president. “I’m the president of the United States,” he told UNC-CH students, “but we [the President and wife, Michelle Obama] only finished paying off our student loans about 8 years ago.”

That arguably the most powerful man in the country could be saddled with student debt into his 40s points to the problem faced by a growing population of students in the U.S. According to a recent CBS/AP article, “Recovery threatened by surging student-loan debt,” the average student loan debt has recently topped $25,000, up 25% in 10 years. A New York Times article, “Burden of College Loans on Graduates Grows,” notes that two thirds of bachelor degree recipients graduated with debt in 2008, the year I graduated, compared with less than half in 1993.

But the loan problem has become a problem not just because students are borrowing greater and greater sums from federal and private sources — although with the rising cost of college tuition and increased enrollment, more and more money is being borrowed from the government and also private lenders like Sallie Mae — but because, according to an analysis by the Associated Press, 53.6% of college graduates under 25 are currently either jobless or unemployed. Students of my generation have emerged from college into the worst recession since the Great Depression. With a scarcity of well-paying jobs, many are struggling to make loan payments that can be up to $900 a month, if not more.

Worse still, like child support and income taxes, student loans cannot be reduced or discharged in bankruptcy proceedings. If a student is incapable of repaying her federal student loans after 9 months she will be in default. In default, she owes the entire sum of the loan. If she can’t pay it, the government has the power to garnish her wages and seize tax refunds, Social Security, and other federal benefit payments, potentially leaving that student destitute.

Because of the pressure of paying off loans in a tough job market, many of my peers have chosen to return to school to pursue more advanced degrees, hoping that this will pave the way for a more lucrative career. I myself chose to return to graduate school after a year away from college in which the best employment I could find was part-time as a daycare teacher. Yet, like me, my peers are emerging from graduate school only to find the same scarcity of jobs, and are now saddled with even greater debt.

Anya Kamenetz, Pulitzer-prize nominated author of “Generation Debt: Why Now is a Terrible Time to be Young,” explained her take on the student loan debt problem in a 2006 interview with Gothamist.com: “We’ve never sent out any generation into the world with that kind of mini-mortgage on their backs. And the irony is, this withdrawal of support for young people is occurring when the US desperately needs a super-sharp, highly skilled workforce to compete with what’s happening in China and India, and to support the retirement of the Baby Boomers.”

President of the National Association of Consumer Bankruptcy Attorneys William Brewer was quoted in April of this year predicting that student loan debt “could very well be the next debt bomb for the U.S. economy.”

At present, according to a report by the Federal Reserve Bank of New York, nearly 3 in 10 of all student loans have past-due balances of 30 days or more. Should a greater number of students fail to pay back their federal loans, the burden will be transferred to taxpayers, further jeopardizing a fragile economy.

From my perspective, the true impact of student loan debt will only be felt in years to come, when my peers still continue to struggle to progress in their careers, and to afford businesses, homes and families. For my generation, the idea of starting a family, and sending our own children to the kinds of colleges we went to, is viewed increasingly as a luxury most won’t be able to afford responsibly for the foreseeable future.

Last week I asked some of my college-grad friends whether or not they felt limited by their student loans. Alison, who graduated from my college and currently has about $100,000 in student loan debt, answered, “Absolutely. It’s my biggest monthly bill [$900/month] so I have to reduce all other expenses. I can only take certain jobs that pay above a certain amount, even if there may be more interesting work that is lower pay. It’s very difficult to take time off. I can’t pursue work in other fields because it would require a pay-cut that I can’t afford.”

My friend Joni, a Mammoth local with about $6,000 in debt, explained how she avoided more: “When I first got my loans I knew I would be paying roughly $250 a month for 10 years if I paid the minimum. I made sure it was something I would be able to afford once graduating. I turned down going to Colorado as tuition would have been 5 times what is was at University of Nevada, Reno. I did not want to put myself in a tough situation and definitely did not want to get help from my parents just because I wanted to go to a more expensive school. I also worked through college and saved money so I had a cushion when graduating, so I was not pressured into finding a job I didn’t like right out of college. Planning ahead definitely helped me to pay off my loans and be responsible for what I had borrowed.”

My friend Sarah escaped debt altogether by attending a Junior College, Oxnard College. “I am very lucky to have no debt,” she said. “I think that is one of the benefits of going to a JC. Having a low tuition was a great thing for me. I know I missed out on going to a university but I still feel like I got a great education and that overall I benefited from the whole experience.”

Cait, another graduate from my college with about $16,600 in debt, explained her mentality: “I’ve been training myself not to feel limited by my student loans, but it’s still hard. I knew I would have loans when I applied to college, and I told myself over and over again that I would have to live with that decision. The thing I didn’t realize then, what didn’t set in until recently, is just how long it’s going to take to pay them off. After graduation, I set myself on a graduated repayment option (meaning I pay less each month, with higher interest on the loan). My plan was to pay less for two or three years until I would be more financially stable. Four years later, and I’m still unable to make full payments.

I sometimes think about the fact that if I didn’t have loans I would be able to travel or put money into savings (something I can’t do at the moment). I also don’t buy new clothes, and I only go out to dinner on occasion. I think of purchases in relation to my student loans.

“All in all though, I don’t regret taking out loans so that I could go to Vassar [our college]. It was worth it, always will be.”

College may still be a lucrative investment. In May of 2011 the Pew Research Center released a study of Census Bureau data that found that on average, college graduates earn about $20,000 more than high school graduates. In spite of the difficult job market, my friends Alison, Cait and Joni have all found work in their fields of computer science, studio art and biochemistry. I myself know that, should the economy bounce back anytime soon, my undergraduate and graduate degrees will still make me a more attractive applicant to higher-paying jobs. And when it comes down to it, I wouldn’t give up the experience of college and graduate school, the friends I met or the classes I took, even for the $20,000 to cover my debt.

Students here in Mammoth don’t seem to be balking at the idea of college just because of debt, either. “Parents and students have never been more aware and fearful of the cost of higher education,” said Mammoth High School Counselor Cheryl Petersen. But in spite of that, she noted that this year at MHS more students than ever applied for higher education, with about 24% choosing 4 year universities, and about 59% choosing community colleges like Mammoth’s own Cerro Coso. “We’ve never had so many students interested in community colleges before,” Petersen said, “and that totally makes sense given the economy.”

College is still worth the investment, she argued, but students entering college in this economy need to have a new mentality about their education. “Students and parents have to carefully consider how they can manage college costs and pursue all venues of financial aid,” she said. “[Students and parents] also have to consider what kind of majors are likely to lead to job opportunities. One can no longer just major in any subject without regard to career opportunities and job prospects.”

Take it from someone who was encouraged to explore herself, and left college with a less than professionally competitive Bachelors in English: this is useful advice.

Petersen pointed out some of the things students and parents can do to avoid overburdening themselves with debt, but what can the nation do to change the larger business of student loans? The 2007 Stafford loan rate reduction is a start, although partisan bickering may lead to its termination at the end of this month. As recently as May 8, Senate Republicans filibustered to block a Democratic proposal to tax wealthier citizens to pay to keep the loan rate down. Should both parties fail to find a compromise, the rate will rise again from 3.4 to 6.8% on July 1.

Regulation of private loan rates is necessary as well, when according to Heather McGhee, director of the Washington office of research and advocacy organization Demos, some young people are paying as much as 18% interest on private loans.

Keeping the cost of higher education within reason would negate the need for such excessive borrowing. Although, given the budget crises faced by most states, and the subsequent cuts to funding for education, the cost of public universities will no doubt only continue to rise.

Thinking about the scale of these changes, it becomes clear that solving the national student loan debt problem won’t be easy. But my hope is that no matter what President Obama and Republican candidate Mitt Romney say they will do to tackle debt, we students, and parents of students, will continue to search for and advocate solutions.

College is and should continue to be worth the price.