CHICAGO – Nov. 2, 2011 – A college education used to be a ticket to a secure future.
Now, a generation of students and graduates is walking off campus with a collective $1 trillion in student loan debt and troubling career prospects. The daunting combination is forcing them to rethink their futures, postponing weddings, home purchases and vacations to make hefty monthly payments on loans that will follow them into middle age.
It’s a financial and emotional strain their parents didn’t have, or at least not to the same degree. Just two decades ago, fewer than half of undergraduates finished school with debt, and the average was less than $10,000. This spring, two-thirds of graduates are expected to have debt, owing an average of $29,000. In fact, student loan debt now exceeds the country’s credit card debt.
Addressing the outcry heard everywhere from Occupy Wall Street protests to kitchen tables in the Chicago area, President Barack Obama last week sped up plans to help graduates dig out. Some borrowers will be able to lower their maximum required payments starting next year, with balances forgiven after 20 years. Borrowers will also have the chance to consolidate loans at a lower interest rate.
But even those proposals may mean only modest help, and won’t help those who’ve already defaulted.
And future students could face even heavier financial burdens. The cost of going to college has risen faster than inflation, home prices and even health care costs. Tuition at the average public university is up 8.3 percent this fall, and 123 colleges now charge $50,000 or more for tuition, fees, and room and board, according to data released last week.
While a college degree will lead to significantly higher earnings over a lifetime, the unemployment rate for recent graduates is more than 10 percent.
“What we know is it is impacting so many people,” said John Pelletier, director of the Center for Financial Literacy at Champlain College in Vermont. “I think many of them have been surprised, as have been their parents. There are many of them like the folks who may have gotten into mortgages they regret and don’t understand.”
That’s true for Steven Kent, who graduated from Loyola University Chicago in 2009 with a journalism degree and $49,000 in federal student loan debt. His payment notices asked for at least $650 a month, he said, more than his $533 rent.
Kent, 27, is working at a Starbucks in Bucktown, where he earns about $1,500 in salary and tips a month. He hasn’t paid back a penny of his loans.
“I didn’t have an expectation that it would be this ongoing bill I would carry forever. I thought it would be like a utility bill, not another rent payment,” said Kent, whose deferment ends in April. “It is like having a ticking time bomb around your neck.”
Laura Perna, an education professor at the University of Pennsylvania, said that while most students borrow reasonable amounts of money, an “important share of the population” has excessive amounts of debt.
“This is a relatively new phenomenon,” Perna said. “For those students, it is influencing many dimensions of their post-undergraduate life.”
In 2005, when the advocacy group Project on Student Debt began, there was so little attention to the issue that founders couldn’t decide on an organization name. “There wasn’t the term ‘student debt,’” said Lauren Asher, president of the Institute for College Access and Success, the home of the debt project. “There was so little awareness of how much our higher education system had changed and how heavily it had come to rely on student debt.”
Indeed, college graduates who finished debt-free two decades ago have difficulty comprehending how a graduate today can rack up more than $100,000 in debt – and even more for lawyers, doctors and others with professional degrees.
“College is still the best investment you can make in the future and our country’s future,” Asher said. “But like any investment, the returns are not guaranteed.”
Homeownership might not be in the cards for couple
Like many young married couples, Jessica and Ian Riley share everything they have, including $30,000 of student loan debt.
She still owes about $21,000 on a loan she took out to pay for the Western Michigan University bachelor’s degree she received in 2006. The debt eats $400 from her monthly pay.
He owes $9,000 for a semester of an online course he took from Ashford University. He pays $627 a month.
“It definitely changes, like, your whole mind frame of things that you do, and not getting any more credit cards, or not accruing any more debt,” Jessica Riley said. “We have rented for 11 years. I would love to own a home, but honestly I don’t see that happening.”
The Rileys, both 29, say they wish the federal government could do something to lower interest rates or offer more flexible repayment plans.
“Just give graduates some kind of solution,” she said. “We want to pay our debt, but it needs to be a reasonable manner where we can eat and breathe and be happy.”
College grad says ‘depressing’ bill has him living with grandparents
If he didn’t have student loans, Anthony Alexander, 23, might be looking to buy his first house.
Instead, the successful college graduate with a $50,000 annual salary is living with his grandparents on Chicago’s South Side, saving as much as he can to pay down about $32,000 in debt.
“It kind of gets depressing. I just graduated from college, and now I have this mountain of debt that is hanging over me,” Alexander said. “It is kind of stressful.”
Alexander, who graduated from DeVry University last year with a bachelor’s degree in computer networking and communications management, pays about $800 a month toward his debt. Under his current arrangement, it will take 30 years to be free of his federal education loans.
Without the loans, he said, he would better enjoy the money he earns as a software consultant with Siemens, buying more clothes or going out more for dinner or movies.
“I definitely watch my spending as much as I can,” he said.