Higher Education In The News

There's no disputing that a college education is a great investment. College graduates can expect to make $1 million more over their lifetime than someone with just a high school diploma.

But more college graduates find it's taking longer to pay for their investment. As student loans have become a larger part of the college tuition bill, many graduates are leaving school with unmanageable debt levels that can affect their financial security, career and lifestyle choices for years after college.

"A college degree is a good investment and becoming increasingly necessary," said Luke Swarthout, higher-education associate with the State Public Interest Research Groups, a consumer organization. "But more of the cost of college has been pushed onto the shoulders of students. For a whole set of borrowers, this debt could affect their choices after college."

The trend affects those pursuing careers at both the high and low ends of the income spectrum – from doctors to teachers and social workers.

"I would like to go into social work or another community-oriented occupation, but I will be hard-pressed to do so until I pay off my student loans," said John Jevitts, a student at the University of Connecticut. "College should provide new opportunities for students like myself, whether those opportunities are intellectual, economic or career-related. Student loan debt blocks many students from fully realizing the promise of a college education."

The nation's system of funding college tuition has put an increasing debt burden on students and their families. Tuition costs have been soaring at the same time that aid grants have been cut in favor of loan programs.

Among college graduates in the class of 1992-93, 49 percent reported taking out student loans, and for them, the average debt burden was $10,179.

For the class of 2003-04, 65 percent took out loans, and the average debt burden had risen to $18,887, according to the College Board.

And the trend is expected to continue. This year Congress cut funding for federal student-loan programs, putting even more of the burden on students and their families.

There is a silver lining, though. President Bush last week signed legislation giving students more freedom to consolidate their loans by repealing what's called the "Single Holder Rule." Under that rule, borrowers who had all their federally guaranteed student loans with one lender could only consolidate with that lender.

The move – long advocated by student and consumer groups – comes two weeks before the June 30 deadline to apply to consolidate loans. After that, loan rates will climb 1.84 percentage points, thanks to rising interest rates.

But the new law is a small fix to a big problem for many graduates.

"Large amounts of debt put graduates in a hole that can take years, even decades from which to emerge," said Richard A. Davies, senior managing director of retirement and college savings plans at AllianceBernstein Investments, which recently issued a report on how college debt affects students after graduation. "Funding a college education isn't just about those four years. It's about a young adult's ability to start a family, buy a house and, ultimately, even to one day retire."

AllianceBernstein conducted an Internet poll of 1,508 college graduates ages 21 to 35 on their college finances and experiences, as well as their current circumstances, attitudes and lifestyles. Of respondents still paying off education-related debt, 44 percent have delayed buying a home, 28 percent have postponed having children, and 32 percent had to move back in with their parents or live at home longer than expected.

What's more, 43 percent said they postponed graduate school, and 39 percent of those with college debt said they left a job they liked because they didn't make enough money.

Other research shows that today's college graduates pay more for tuition as a percentage of their starting salary, and they also pay more payroll taxes than their counterparts did decades ago.

And this doesn't even begin to account for the credit card debt that many students have.

Not enough

A Dallas research analyst got a rude awakening when her salary wasn't big enough to let her repay her student loan.

The woman, who didn't want to be identified because she didn't want colleagues to know her situation, returned to school to get a graduate degree in hopes that it would lead to a better-paying job in California, where she was living.

"It didn't," she wrote in an e-mail. "I had to move back South and was able to get a job in Dallas. Even then, I got paid at the lower end for my job industry with 30 years' work experience, which didn't give me enough money to live and pay my student loans. I am paying on my graduate loan, but my undergrad loan is still deferred."

Student loans are a particularly vital source for minorities, she said.

"Minority students get loans because that's probably the only way they can afford to get into college, but they don't get the jobs to help them pay back loans," she said. "Even if they get a job, salaries are usually at the low end, and the income is not enough for them to live and pay student loans. That leads to deferment, where the interest is added back into the principal, causing the loan to be increased over time, making it even more difficult to pay off the loan."

Of her situation, the woman said, "I'm now 51 years old, and I think I'll be paying back student loans until I die, not to mention retire."

Of course, most people pay off their student loans. The student loan default rate has fallen to around 4.5 percent. That's a result of efforts by the government to get control of the situation in the early 1990s, when the default rate topped out above 22 percent.

But just because the default rate has fallen doesn't mean that many people aren't struggling more than earlier generations did to pay off their loans.

In default

Here are two other graduates' stories.

•Alan Collinge of Tacoma, Wash., borrowed a total of $39,000 for undergraduate and graduate school and has three degrees in aerospace engineering. He defaulted on his loans after he lost his job in 2001.

"It would be about two years before I again found any type of full-time employment," Mr. Collinge said. "During this time, I worked as a cook on a remote island in Alaska, and my loans went into default."

He said Sallie Mae, the nation's largest student-loan lender, denied him a hardship deferment on his payments, tacked on fat penalties and refused to remove them.

"The loan has since been transferred to the Department of Education, which now claims that I owe about $105,000, which may as well be a million," said Mr. Collinge, who established studentloan justice.org, a Web site for those struggling to pay student loans. "I cannot get a job in the aerospace field with my abysmal credit record."

Sallie Mae executives said they gave Mr. Collinge every opportunity to resolve his situation.

"We have made multiple attempts to help him manage his student loans," said spokesman Tom Joyce. "He made nine payments over a period of 162 months. Of those nine, one was on time and for the full amount."

•A borrower who asked to be identified only as a chiropractor in the Panhandle said he defaulted on his student loans because he couldn't earn enough money consistently to repay them. He owes $308,000.

He hasn't been able to renew his chiropractor's license because of his loan defaults. He has been seeing a few patients but only taking cash for payments.

He has stopped treating personal injury patients because he didn't want to risk being asked during court testimony whether he is licensed in Texas.

"I'm not making the income that I could be," the 57-year-old said. "What kind of future do I have? None."

How to do better

So what's the solution?

Experts say students should consider the finances of their college investment and plan carefully.

"A lot of kids are going through college without really considering that this is a debt that must be repaid," Mr. Collinge said.

Before students take out loans, they must figure out what their monthly payment will be – and whether their chosen career is likely to provide enough income to service the loans. If not, students should choose a less expensive college, a more lucrative career, or a more frugal post-college lifestyle.

Of course plans don't always come off the way we'd like. But it's better to have a realistic plan than to take out loans blithely assuming you'll be able to repay them.

Also students should choose a repayment term carefully and be sure they understand the rules regarding student loan repayment and the options for consolidating loans.

Those who default on federally backed student loans pay a high price financially and professionally.

"The debt is unique in that there is simply no escaping it," Mr. Collinge said.

The Internal Revenue Service can seize your tax refund to pay your student loan. You can't discharge your loan by filing for bankruptcy, and the federal government can garnishee your wages to pay the loan. That applies even in Texas, which has strict prohibitions against wage garnishment.

What's more, professional licensing boards will deny you a license if you default on student loans.

If you think you'll have trouble paying off your federally guaranteed student loan, contact your lender immediately to work something out. You don't want to mess with Uncle Sam.