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Student loans rob the future to pay today with wide-ranging consequences

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— Kirk Woundy

Student debt is at an all-time high. Americans owe $1.2 trillion for higher education, according to an August 2013 Forbes report.

Some say higher education is a choice, and the debt that comes with it is the student's responsibility. Mitt Romney, for example, famously said in his 2012 presidential campaign that Americans should get "as much education as they can afford."

But unemployment among recent high school graduates not enrolled in college is 30.9 percent, according to the U.S. Bureau of Labor Statistics. Higher education may be a choice, but it's a loaded choice.

And for many, it hurts.

Just ask Breanne Willey, 31, who lives in Colorado Springs. Willey works as an associate counselor for an insurance company and is trying to pay off the $52,000 in loans and interest she owes from bachelor's and master's degrees. She's facing payments of $600 a month, or nearly a quarter of her salary.

Or ask Angela Guido, 37, who will owe $130,000 from undergraduate and graduate loans, plus interest, when she receives her master's from the University of Colorado at Colorado Springs in 2016. Her monthly payments will top $1,000 — and she fears that her loans will crush her credit score.

Ask the 284,000 college graduates who worked at or below minimum wage in 2012, according to the U.S. Labor Department. Ask the reported 7 million student loan debtors who haven't made a payment for at least nine months.

Hell, ask virtually any college graduate who has loan debt — 71 percent of the class of 2012, according to the Institute for College Access and Success. These students owed an average of $29,400 at graduation, ICAS found, higher than 2011 graduates' $26,600.

Of course, not everyone's hurting. Federal student loan servicer Nelnet posted record profits in 2013 — $303 million. Sallie Mae, a public-turned-private loan servicer recently reported to have overcharged active-duty military personnel, made $284 million in profit in just the first quarter of this year alone. And that was actually down from $346 million a year earlier.

Says Sara Fitouri, Denver caucus member of the Colorado Student Power Alliance and board member of Jobs With Justice: "It's a tax on the poor that transfers money to the rich."

A national problem

The most common student loan is a federal Stafford loan. Undergrads coming from lower-income families are usually offered a subsidized loan with deferred interest — meaning interest is not added while the student attends at least half-time. Most students qualify for an unsubsidized loan, which gathers interest from the time it is accepted.

Between 2006 and 2008, all Stafford loans were offered at 6.8 percent interest. From 2008 through 2013, subsidized loans were offered to undergrads at lower interest rates, part of a loan cost reduction bill. In 2013, the bill briefly lapsed due to partisan debate.

Today, both subsidized and unsubsidized loans are offered at 3.86 percent interest to undergrads. Grad students can get unsubsidized loans at 5.41 percent. Typically, they're all repaid on a 10-year plan.

Meanwhile, tuition just keeps going up. U.S. News & World Report found it rose by an average of 3.8 percent between 2012 and 2013. The rate of inflation came in at 1.5 percent.

According to Department of Education reports, 14.7 percent of students who started to pay or were already paying loans in 2010 have defaulted — failing to make payments for at least nine months. At public two-year colleges such as Pikes Peak Community College, this "three-year cohort default rate" is much higher: 20.9 percent, according to PPCC financial aid director Ron Swartwood. (PPCC's three-year cohort default rate was 21.3 percent as of 2010.)

The kicker: Stafford loans, and most student loans, usually do not go away if the debtor cannot pay them. According to Chris Hicks, who oversees programs like the Colorado Student Power Alliance around the country as part of his work with Jobs With Justice, people essentially lost the right to declare bankruptcy on student loans in 2005. Under the standard 10-year payment plan, student loans only go away when paid in full.

Life in debt

Willey is a Colorado Springs native, a self-described product of School District 11. She wanted to be a paramedic, and worked as one for some time. Still, her mother's advice was to get a bachelor's degree and plan for long-term financial success.

"You have to have a four-year degree as a backup plan," Willey says.

She went to the University of Northern Colorado in Greeley to get her teaching degree, pursuing another passion. After the tragic accidents she'd seen as a paramedic, she wanted — and still wants — to help others.

Willey's mother took out loans to help her daughter, who went to school as a first-generation college student. But Willey had to take some out herself, too. When she graduated, she took a job as a special education assistant and lived at home.

"I had my bachelor's loans on income-based repayment because I was working as a special education assistant [at the time]," she says.

To help her make better money, she went into a counseling graduate program at UCCS in 2007. Her payments were deferred during the two years she took to get her master's, but she also accumulated more student loan debt. Right now, she owes $52,000.

Under a 10-year plan, she would be paying $600 per month, which she cannot afford even with her job at the insurance company. So her loans are on forbearance — delayed payback — with interest still accumulating. Her husband is supportive, but she says she doesn't want him to suffer for her costs and choices.

In the past, Willey admits, she thought her loans were just sitting there, harmless.

"But they are there and hurting, because I can't get out from under them," she says. "I'd like to have children, but there are definite financial concerns ... when you pay so much."

Her situation could be worse. After all, Angela Guido will owe $130,000 when she receives her master's in 2016. After a little time at the University of Northern Colorado in Greeley as a theater student, she switched to the University of Phoenix in the Springs and earned a bachelor's in business management. After a false start on an online master's program at Gonzaga University, she transferred her studies in business communications to UCCS. This was when Guido realized how much she owed.

"My student loan debt," she says, "impacts every financial move I try to make."

Stuck in this station

According to Fitouri, the system is simply not fair. Loan payments don't feed into making the system more affordable; payments to the government go toward the deficit, and private loan servicers pocket their share of the money as profit.

Fitouri's organization, the Colorado Student Power Alliance, is dedicated to giving students a voice as major stakeholders in higher education through providing a support network and taking direct action. It also focuses on giving students more of a say in what they are taught, and fights corporate influence in academia.

On the home level, student debt makes it harder for middle- and lower-class students to improve their economic station. Students from higher-income families have the luxury of waiting for a job in their fields, she says, but middle- and lower-class students often have to take the first job they're offered. As a result, a huge part of their income goes to loan payments.

The Department of Education does offer payment plans adjusted for income and family size, many of which include loan forgiveness for regular payers, but these plans are poorly advertised. And Hicks says loan servicers generally have no motivation to help students pay their loans.

Companies servicing federal student loans get paid based on the number and status of the loans they service. If they do not receive a certain amount from repayments, the Department of Education backfills that amount. Either way, it's the government, not a servicer, that has to go through the trouble of, say, garnishing your wages and/or intercepting your tax refunds.

The main federal ally for students mistreated by their loan servicers is the Consumer Financial Protection Bureau, which can use its authority to arbitrate conflicts. The federal Higher Education Act, Hicks says, will add oversight of federal loan servicers — but that won't be discussed until next year. Hicks says it's no help for students in debt now.

Ultimately, Fitouri feels loan forgiveness and income-based repayment won't be enough. She says at some point, Americans have to start investing in higher education in order to lower tuition costs. The money that goes into servicing student loans could eliminate a major part of public university tuition.

Both Willey and Guido feel their loan debt is their burden to bear. But Fitouri says student debt is not an individual problem or "an individual shame." It's a generational problem, hurting students, their families, and the entire American middle class. According to Fitouri, people are realizing that this is a national problem.

"Having students and families who don't participate in the economy," she says, "is really detrimental to society."

gswartzell@csindy.com

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