Sunday, Nov. 30, 2008 | 2 a.m.
Beyond the Sun
Why are students borrowing so much today? And what relief is there for students struggling to repay their loans? To learn more about these subjects, visit the following Web sites:
A pair of College Board reports show how the cost of attending college has escalated over the years and how students are financing their educations.
Trends in college pricing:
Trends in student aid:
The "cohort default rate" the U.S. Department of Education releases annually measures the percentage of federal student loan borrowers who begin repaying their debt in one fiscal year and default before the end of the next. The Department maintains a database that allows anyone to search for schools' default rates.
In the midst of an economic downturn, more borrowers are having trouble repaying loans.
The nonprofit Project on Student Debt has information on an income-based repayment plan set to roll out in July 2009 that will cap monthly payments for many federal student loan borrowers:
USA Funds, a student loan guarantor, has information on repayment options for borrowers struggling to repay loans in the federal program:
THINKING ABOUT BORROWING?
Learn more about federal student aid programs including loans and grants:
The nonprofit Project on Student Debt has advice for borrowers, along with reports on financial aid:
“Why would they give some kid $60,000? What gave me the privileges to take out loans like that?”
These are the questions Eric Jones, 24, has been asking, to no one in particular, since he graduated two years ago from The Art Institute of Las Vegas with a bachelor’s degree in graphic design — and a heap of debt.
A graphic artist for a national firm headquartered in Las Vegas, Jones earns about $33,000 a year before taxes.
His monthly student loan payments total more than $700.
In all, Jones owes more than $80,000, including loans he took out to pay tuition, and interest that has accumulated.
The amount of Jones’ student loan debt is unusual, but the fundamentals of his story are not. In a bleak economy, students are leaving school carrying growing amounts of debt that force them to put other dreams — homeownership, marriage, raising children — on hold.
A College Board report on trends in student aid shows that the average borrower who graduated with a four-year degree in the 2006-07 school year had $22,700 in loans, up 15 percent, after adjusting for inflation, from 2002-03.
The struggle to find money for college has some education and political leaders calling for greater emphasis on grants and other aid students don’t have to pay back. President-elect Barack Obama, for instance, pledged in his campaign to give students a $4,000 tax credit for 100 hours of public service.
Borrowing, however, is likely to remain central to the way families finance college for years to come.
For many students, loans are a blessing, making higher education possible.
But others say the money is too easy to obtain, fueling decisions they later regret. Some, like Jones, wish they had chosen cheaper schools once the reality of how much they borrowed hits in the form of steep monthly payments.
“You don’t look at it as a corporation because it’s a school. But they just want your money.”
With that statement, Jones answers his own question. That, in part, is what enabled someone in his 20s with a skimpy credit history to borrow tens of thousands of dollars.
It’s just the way the system works.
Students’ willingness to take out loans provides colleges with steady income. With record numbers of applicants looking to enroll, even expensive schools can afford to keep raising fees.
Financial aid offices are set up to ensure students can get money — not to discourage them from attending their dream schools, even if that means racking up decades worth of debt.
To be fair, colleges typically suggest loans only after students have exhausted alternatives.
And The Art Institute even offers bachelor’s degree students up to $10,000 in tuition credit to match scholarships they could have received had they attended a public school.
Still, 87 percent of Art Institute students borrowed in the 2006-07 school year.
Under the federal Education Department’s loan program, students and parents borrow from the government or from lenders whose loans the government backs. Congress sets maximum interest rates.
To give lenders incentives to lend, the program limits their risk to encourage profits. When borrowers default, lenders receive 97 percent of the amount owed from guaranty agencies that get similar reimbursements from the government.
Until recently, investors’ hunger for securities backed by student loans made it easy to finance lending. But in the midst of the credit crunch, the Education Department is buying up to $6.5 billion in federally backed loans lenders made in the 2007-08 school year, along with loans made this year and next.
In recent years, surging college costs and caps on how much students can borrow from the federal program have expanded the market for private student loans, which are not guaranteed by the government and often carry double-digit interest rates.
When Jones was in school, money flowed readily, but newly wary lenders have begun tightening restrictions on who can borrow. Many have pulled out of the private student loan market — some say that’s good.
Of the $80,000 Jones owes, about three-quarters is on private student loans, some co-signed by his mother. The new difficulty in securing such funding could force students to consider what Jones wishes he had done — attend a less expensive school.
“There are some colleges that think of private loans as financial aid. We strongly disagree,” says Lauren Asher, vice president of The Institute for College Access and Success, a nonprofit group dedicated to improving access to higher education.
“Do you think of credit cards as financial aid?” Asher says. “Or home equity loans as financial aid? (Private loans) are just an expensive way of getting cash.”
But Justin Draeger, vice president of planning for the National Association of Student Financial Aid Administrators, calls private loans “a necessary evil.” Families, he says, have come to depend on them.
“Had I known I had to pay over $700 a month, I wouldn’t have ever agreed to go to that school in the first place.”
Jones knows he shouldn’t have signed up for loans without understanding how long it would take to pay them back. “When it’s all said and done,” he says, “it’s my fault.”
Still, he adds, companies are “offering these crazy loans and qualifying these kids that are clearly not educated about what they’re really going to have to go through.”
Financial aid advisers, he says, did not caution him against taking on too much debt.
At all schools, students must complete counseling to learn about borrowers’ responsibilities and repayment plans before getting federally-backed loans.
In Jones’ case, The Art Institute provided him with documents explaining loans, and he signed acknowledgments stating he understood their terms.
But, “being 18, I didn’t care what the interest rate was,” he says. “I didn’t think about it.”
Nancy Rapoport, a UNLV law professor and bankruptcy expert who sat on an American Bar Association commission examining student debt, says students deciding whether to borrow for college should ask themselves, “Does my choice of career match my ability to repay my loans?”
This, says Rapoport, is an issue lenders and financial aid officers should broach to give students a “reality check.” Like subprime mortgage borrowers, she says, young people eager to go to school often don’t pause to consider their ability to pay later.
Some financial aid officers say they avoid discussing salaries because each person’s background affects job prospects. Students might change their field of study. And data about earnings is widely available.
At The Art Institute, Jones received financial plans showing how much debt he could expect to accrue over the course of his studies. Students there must meet with financial aid staff before borrowing, which isn’t the case at other schools.
At the College of Southern Nevada and UNLV, loan counseling is available online. Students who want to sit down with an adviser can get an appointment. But not everyone wants or needs in-person attention, says Peter Hurley, director of student financial services for CSN.
CSN does not include loans in financial aid packages unless students request them, and of more than 57,000 who studied there in the previous fiscal year, just 2,088 borrowed.
Melise Leech, 51, says the only debt counseling she attended before accumulating more than $100,000 in federal loans and interest over seven years at UNLV was a group session with fellow students. She doesn’t recall what she learned there.
“There’s nobody sitting down with you and saying, ‘Look, if you’re not careful, you could find yourself looking at $100,000 of loans in the next few years,’ ” says Leech, who earned a master’s degree in history from UNLV but dropped out of her doctoral program there in 2007.
Of the yearly financial aid process, she says, “They sent me a letter and said, ‘This is how much you’re eligible for,’ and they said, ‘Check off what you want. Do you want this? Do you want that?’ So you look at it and you say, ‘OK,’ and I checked them off. And that’s it.”
Harrison Wadsworth, special counsel to the Consumer Bankers Association, says prospective borrowers can call lenders to inquire about loans. Banks disclose interest rates and repayment plans, he says, and students need to invest time into understanding the debt they’re taking on.
“They need to know they’re getting the education that they want, they need to think about how much money they’re borrowing and if they’re going to be able to pay it back given the field of study they’re pursuing,” Wadsworth says. “I am amazed at the amounts that some students borrow, and it seems like it’s too much.”
“I don’t think I’ll ever go into default. ... It’s not going to get me anywhere — just a deeper hole.”
Jones knows defaulting on his loans could ruin his credit and leave him with a bigger debt. The government charges defaulters in the federal program for the cost of collection and can garnish a portion of their wages.
Bankruptcy laws that allow people to discharge most medical and credit card bills make it difficult — some say nearly impossible — to write off student loans, including private ones.
Under Jones’ repayment plan, he is strapped to his student debt until 2032. By that time, he will have shelled out more than $137,000. He will be 48.
He could reduce his monthly bill by choosing a longer repayment plan, but the total he would ultimately pay would balloon. “To me, that’s just getting screwed over even more,” he says.
His mother covers some of his loan payments. But he is responsible for most, along with a monthly car payment, insurance, groceries, gas, his portion of the rent on a house he shares with his girlfriend. Buying a home is little more than a pipe dream. Starting a retirement account? Out of the question.
Jones’ mother had declined to pursue federal loans parents can take out to fund students’ education. She says she would not have let her son borrow so much had she known how long it would take to repay the loans.
“I was naive myself,” says Alicia Pontbriant, 46, a respiratory therapist. “I’d never taken student loans out. You always hear student loans are the best thing on the planet because they’re really cheap ... I just had no idea.”