NewsI owe U
Three years ago, I decided to attend graduate school with little forethought and lots of hope. The tuition for the private college where I enrolled was steep, but I brushed off the debt, figuring I would cross the repayment bridge when I got to it. I joked that I might be paying off my education until I was 60, but even as the words came out of my mouth, they didn’t seem real.
After graduation, my student-loan balance broke $50,000.
Now the truth lay before me, thousands upon thousands of dollars owed in my name to the federal government – or was it my lender, or some private bank? I’m still not sure. I had reached that repayment bridge, and all I wanted to do was turn back and start all over again. I soon found out that I wasn’t alone.
“Student-loan debt is just as bad as any other debt,” says April Norhanian, the Atlanta-based author of College Is for Suckers. “Unfortunately, in my generation it has delayed decisions whether or not to start a family, buy a house, things like that.”
Although Norhanian has a master’s degree, her exposure to the marketing machine while working as a college admissions officer led her to believe that going into debt for college is a bad decision: “It’s marketing hype. They use fear. Colleges say if you don’t have a $70,000 education, you’ll be flipping burgers for life. When I worked at an art school, I saw people spending several thousands of dollars thinking they are going to be game designers, and they’re still working at the local coffee shop, paying off those loans.”
According to U.S. Department of Education statistics, few students can afford to pay for college without some financial help. Loan options range from government-regulated Stafford and Perkins loans (which have lower interest rates), parent loans and private student loans. In the 2007-2008 school year, 86.3 percent of undergraduates borrowed to pay for their education, and the average cumulative debt was $24,651. Post-grad and professional students borrow even more; cumulative debt for a graduate degree ranges from $30,000 to $120,000.
So what happens when all of these students, degrees stashed in sweaty palms, go out into the real world to search for a job and cannot find something that will allow them to pay off that debt in a timely manner? Forget about applying for bankruptcy. Thanks to 1998 amendments to the Higher Education Act, student loans, even those not guaranteed by the federal government, are nondischargeable in bankruptcy.
Unlike credit card and housing debt, student loans can follow borrowers to the grave. Since interest continues to accrue even when loans are in forbearance, those in debt can end up owing double or even triple their original loan amounts. Loan companies like Sallie Mae have the power to garnish wages, tax returns, Social Security and disability income to get their payback.
“Where someone with a bad mortgage is forced into bankruptcy and left with nothing, a distressed student borrower is forced into a predatory, government-sanctioned trap where the only way out is to pay triple, quadruple or often far more than the original debt,” says Alan Collinge, the author of The Student Loan Scam: The Most Oppressive Debt in U.S. History – and How We Can Fight Back. Collinge founded StudentLoanJustice.org in 2005 in an effort to restore consumer protections to the student-loan business.
“Student loans barely existed 30 years ago,” he argues. “Today, we owe $700 billion as a nation, one in three borrowers are being put in default, and decent citizens are being forced off the grid, out of the country and worse by the very system they were compelled to embrace from a young age.”
In his book, he advocates for a grass-roots movement to pressure Congress to protect borrowers. Collinge may see his goals realized sooner than later. In July, President Barack Obama introduced a plan that would end the role of private banks in the federal education lending system – and while the legislation hasn’t yet passed Congress, its approval would limit banks’ ability to make money off government-backed loans. In essence, he wants to remove the for-profit middleman.
That’s a start. But the key to averting personal student-loan disaster begins with looking at options as they stand right now. Put simply, too many people jump into the debt morass without doing their homework.
The first two years of college tend to cover core classes, which students can take care of at community colleges at significantly cheaper rates before transferring to more expensive universities. (Valencia Community College may not carry the prestige of, say, the University of Florida right off the bat, but the money saved may be worth it in the end.) Students could choose to attend state schools rather than private universities; realistically, the strength of a particular program is more important than the name of the school on the degree.
Also, borrowers should consider the source of the loan. The Student Loan Borrower Assistance project encourages students to exhaust their federal student grant and loan options before turning to private loans. Non-government loans tend to lack the more affordable, fixed rates and flexible repayment options provided by Stafford, Perkins and PLUS loans. Interest rates for private loans have risen as high as 28 percent in at least one publicly documented case.
Students can also try to live frugally – a lesson I learned too late. I treated my loan-refund checks as petty cash. I bought records and clothing without thinking of the money as something I would have to pay back later.
Norhanian says that college may not be the best route for everyone. She encourages people to travel, work and really think about what they want to do with their lives before deciding on college.
“Don’t go into debt and try to do it on your own just because it’s the thing to do,” she says. “Research what you want to do. So many people are just kind of herded into college. … There is nothing wrong with not knowing what you want to do, but people rush into it without really thinking about it.”
A version of this story originally appeared in the North Bay Bohemian.