An education in debt: Grads buckle under burden
In Muskegon, Mich. high school honors student Rachel Harris has taken to the Web to seek donations in a cyber-attempt to afford her dream college, Notre Dame.
In New York City, attorney Robert Applebaum, who owes more than $96,000 in student loans, has watched what was once a personal rant argued on the Internet turn into a Facebook group with 128,000 members who have signed on in support of his idea of urging the federal government to spearhead college loan forgiveness. Doing so would be a certain way to jumpstart consumer spending, he defends.
The struggling U.S. economy is impacting college education and youthful aspiration as more families have lost jobs and savings. Today’s students are forced to borrow more, put a four-year degree on hold while they work, or even choose degree programs that aren’t their hearts desire — but may one day allow them the means to pay off their education. Money is available, but concern remains over whether today’s students will garner enough financial success to ever pay it back.
Many graduates are feeling the pinch.
“I loved being a district attorney,” says Mr. Applebaum, 35, who worked in Brooklyn D.A.’s office for five years after he graduated from Fordham Law School. “But I quit (to enter private practice) because I had to pay off my loans — I’d put them on hold for five years. Although I had great passion for my job, I just couldn’t pay off law school and also pay my rent. The only difference between Sallie Mae and Citibank and the mob is the cement shoes.”
Higher education attorney Sheldon E. Steinbach says he can understand today’s college finance conundrum.
“It’s a pretty complex time,” says Mr. Steinbach, a partner in the Washington law firm Dow Lohnes who served for decades as the general counsel for the American Counsel on Education.
“Even families that have saved are facing dramatic losses in their college tuition plans,” he said of the dive in the market that has slashed investments, even for education. “There are many families out there who are changing plans. Students are staying at home, working, going to community college for their first couple of years then transferring to a four-year school, “ to keep their costs low.
“It’s a very reasonable and acceptable way of going to college,” he adds. “I think for many students, they are coming to terms with the fact that you don’t have to go to a school with all the bells and whistles. I think you will see more and more kids also transferring from the smaller private schools to the state public universities. Money is short and families have to make the determination as to how they are going to deal with this.”
Higher education experts say demand for student loan money is higher than ever this year with federal loans still plentiful for those who need them. Private loan financing, which many students have relied upon in the past to augment federal loans, is less plentiful or tougher to get.
“It’s clear that the broader economic crisis means that more families are going to have trouble,” says Sandy Baum, a professor of economics at Skidmore College and analyst for The College Board in New York.
“Lots of schools are doing everything possible to increase financial aid this year and people are working hard on solutions, knowing that many families are going to have trouble. I’m optimistic in the sense that I think there is a lot of awareness of the potential crisis and that more students and families are going to have trouble paying with their own resources.”
For-profit institutions may have to lend money themselves to students. Those students seeking private loan dollars will likely face a tougher time from more cautious lenders who will seek a credit-worthy co-signer on some student loans, she said.
“If you don’t have a parent who is credit-worthy, you will have a harder time.”
In 2008, some colleges and universities went into momentary panic amid fears that some banks, stung by the fallout of the sub-prime mortgage crisis and stock-market fallout, were slowing the amount of federal student loans and private-label loans to students. But the Bush administration and Congress took swift action giving the Department of Education more authority to ensure these loans were available.
“Right now, it’s stable and we certainly haven’t reached a crisis point yet,” says Terry Hartle, senior vice president for government and public affairs at the American Council on Education in Washington.
How lending patterns might change for students entering this fall, “We won’t know for another couple of months,” he said. “My guess is that federal student loans will be widely available but the availability of private loans will depend upon the broader availability of credit in the financial system. We won’t know what that will look like until closer to September.”
Nationwide, the federal student loan default rate has been declining steadily since the early 1990s, Mr. Hartle said, when it peaked at 22 percent. Now it hovers around six percent for all types of students and all types of institutions, moving lower for four year schools and higher for trade and technical schools.
As students and families face tough choices in the months ahead, the Obama administration has proposed broad changes that would eliminate private banks from the federal student loan program. The president has argued that such a switch would save the nation about $4 billion a year in subsidies by eliminating private banks and making loans directly from the Department of Education to borrowers.
Such a plan was initially floated by former President Bill Clinton in 1993, but Congress decided not to go along with it, setting up a direct loan program alternative that let students decide which of the two programs they wanted to participate in. “In the end, the competition between these programs proved to be a good thing because it improved the quality of service available to students and families and institutions,” Mr. Hartle said. “Even people who had argued for one or the other now conceded that the competition created a much better student loan system than we would have had otherwise.”
Mr. Hartle says that now that Mr. Obama has renewed discussions, his proposal is not without controversy and will have a tough road ahead in the Congress. “Banks that make student loans make political contributions to members of Congress,” he said. “The big difference between now and 1993 is the Department of Education has shown that it has the ability to run a student loan program and the banks aren’t terribly well-regarded by much of the public right now. I don’t know what will happen.”
As the method for getting money into the hands of students shapes a Washington debate, students face their own dilemma. Is it worth going into deep debt to finance a degree, particularly for many with aspirations to graduate work in programs like medicine or law? And if you do borrow the money to follow your passion or dream, will you find future work that will allow you to pay it all back?
The Michigan high-school student, Miss Harris, is so intent on getting to Notre Dame, where she hopes to study biomolecular engineering, that she’s advertising her worthiness online — www.iwanttogotonotredame.com — seeking the kindness of strangers as a way to defer some of the costs of the $46,000 a year tuition at the vaunted Catholic university in South Bend, Ind. Her story, boasting her 3.97 grade point average and her youthful determination to use the Internet to fundraise, has been broadcast on Fox News and in other national media outlets. She notes, in defense of the expensive tuition, that the faith-based education is important to her, even as she has already been accepted at a solid in-state school, the University of Michigan.
Mr. Applebaum, who also pursued his dream to attend a toptier law school, sounds a cautionary note for students like Miss Harris. While he initially borrowed about $75,000 to complete law school, his deferment and compounding interest on his student loan, as he pursued a legal career in public service, has pushed the amount he now owes over $96,000. He created a Facebook group in January, “Cancel Student Loan Debt to Stimulate the Economy” where he makes a bold case that the economic stimulus won’t tweak the nation’s spending — “the middle class was completely left out of this debate” — but by forgiving student loans, many successful people caught in the borrowing trap, would be freed to spend again.
Little did he know that his own financial quandary would put him at the center of a growing movement, with 2,500 new group members joining his cyber-cause daily.
“I’ve somehow become the poster-child for student loan reform. The student loan movement has now become my fulltime job,” he jokes, but then turns serious as he talks about a crisis that he says continues to swallow up good people, seeking a college education that may no longer be affordable.