College graduates' growing loan burdens can affect job, family and housing choices

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Darrell Sapp, Post-Gazette

Raquel Rivera works at the Mad Mex restaurant in Robinson. Ms. Rivera graduated from the University of Vermont and is living with her mother while she pays off $12,000 in student loans.

By Tim Grant
Pittsburgh Post-Gazette

A year after graduating from the University of Vermont with a degree in philosophy and religion, Raquel Rivera waits tables at a Mexican restaurant and lives with her mother in Carnegie.

Before she moved back home in mid-August, Ms. Rivera said she worked two jobs seven days a week in Massachusetts just to cover the bare necessities -- rent, transportation, utilities and payments on a $12,000 student loan.

"I know others with way more student debt than I have," Ms. Rivera said.

For college students and their families, borrowing to finance higher education is about as common as crowded lecture halls and messy roommates.

And the rising cost of attending college -- yesterday the College Board annual report showed that the average tuition and fees charged by the nation's four-year public and private colleges rose by 6 percent this year -- is causing more graduates to enter the work force burdened with many years of student-debt obligations. That, in turn, forces many of them to take jobs or work in locations they would not otherwise have chosen. It also causes young couples to postpone marriage, starting a family or buying a house.

The College Board report showed private education loans in 1994-95 amounted to about 5 percent of federal student loan volume. Today, student borrowing from private sources equals about 25 percent.

The study also found graduate student borrowing is increasing more rapidly than undergraduate student borrowing, but the fastest growing student aid program over the past decade was Parent Loans for Undergraduate Students (PLUS).

Although Jacquelyn Smith, 21, a senior accounting major at the University of Pittsburgh, has cut her costs by living at home with her parents in Monroeville and commuting to Oakland, she estimates she'll have about $20,000 in student debt when she graduates.

"It's sort of like a big, dark cloud hanging over my head," said Ms. Smith.

"I'm looking forward to being on my own and taking care of myself," she said. "But I'll probably want to pay the student loan off first before I buy a house or a car or take on any big payments," she said.

The National Center for Education Statistics found the average college graduate in 2003-04 owed $19,000 in student loans after four years of college. Law and medical school students easily could end up owing six-figure college bills.

"It kind of limits you because if you do want to do public-interest law you can't because you are saddled with all this debt," said Jonathan Schultz, 22, of Buffalo, a first-year law student at Pitt. He estimates he'll graduate with $80,000 in student debt. "You're precluded from doing what you came to law school to do."

Samantha Sherwood, 22, says she will owe $100,000 in student loans when she graduates from law school at Pitt.

"My student debt will make me choose a job for higher pay rather than one I'd be happier doing in the beginning," said Ms. Sherwood, a first-year law student.

College debt often takes its biggest toll on borrowers who attended college but did not earn a degree; people from low-income families; older students with other debt obligations; and young graduates with low-paying jobs.

What's worse, the cost of borrowing money for college became much higher as of July 1.

The interest rate on Stafford Loans, the most popular and lowest interest loans for undergraduate and graduate students, rose from 5.3 percent to 7.14 percent on existing loans and 6.8 percent on new loans. That means $2,000 in additional payments for a graduate with $17,500 in debt.

Stafford Loans can be either subsidized for students with documented financial need or unsubsidized for others. While students are in school, the federal government pays interest on the subsidized loans but not the unsubsidized ones.

Interest rates on Parent Loans for Undergraduate Students increased even more dramatically. They went from 6.1 percent to 7.94 percent for existing loans and to 8.5 percent for new loans.

Federal Perkins Student Loans -- for low-income undergraduate and graduate students -- will remain at a 5 percent fixed rate, making the program more essential than ever to the borrowers they are geared to help: low-income undergraduate and graduate students with financial need.

The rising interest rates could not have come at a worse time for many people already under financial pressure.

"Families across the country are pinching pennies so they can afford to send their children to college," said Toby Chaudhuri, communications director for Campaign for America's Future, a Washington, D.C., group that advocates economic policies for working people. "They are willing to sacrifice a lot for a college education, but it is getting harder and harder as costs go up and student debt goes up, too."

Payments on student loans -- Perkins, Stafford and private -- often begin either six months after graduation or six months after the borrower no longer attends college full time, which is right around the time young graduates also start having to pay rent, car loans and credit card debt.

On top of school loans, the average college student also graduates with five credit cards totaling $2,800 in debt plus a car payment, said Howard Dayton, a financial expert and chief executive officer of Crown Financial Ministries.

"College debt is permissible, but I'd encourage students and their families to use as little as possible and pay it off as soon as possible," Mr. Dayton said.

Mr. Dayton encourages students to take more responsibility for working and earning money for their education.

"They will appreciate the education more and are more diligent in their academics," he said. "It also develops character to be hard workers, something that benefits them the rest of their lives."

If borrowers fail to make loan payments or work out an acceptable payment plan with the lender, it could ruin their credit rating and make it more difficult to buy a house, cars and other big-ticket items on credit.

The U.S. Department of Education recently reported that the default rate on federal student loans rose to 5.1 percent in 2004, the latest statistics available, from the previous year's record low of 4.5 percent.

Filing bankruptcy will not discharge a federal student-loan debt. Private student loans also can't be eliminated through bankruptcy unless the borrower can prove that paying it would result in "undue hardship," a tough hurdle that's almost impossible to leap.

Undergraduates are limited to a maximum of $23,500 in all types of federal loans combined. If they need to borrow more, they must turn to private lenders,

Private loans for education usually will not carry as low an interest rate as federal loans because they are based on the borrower's credit score.

"Some people do things far riskier, like use credit cards to finance college costs and work too much," said Tom Joyce, spokesman for SallieMae, one of the country's largest private education lenders. "Private education loans are almost always a better option than not going to school.

"The proper amount of debt is different for each student,'' he added. "It depends on the cost of the college, their course of study and their ability to repay."

Rising tuition is only one factor in students taking on more school debt.

Changes in federal rules have increased the amount that students can borrow and relaxed the criteria that calculates how much a student needs. Borrowing also depends on a student's living expenses and the willingness of parents to contribute

A study done by the American Council on Education showed 62 percent of students who received a bachelor's degree in 2003-04 had student loans. People who graduated from community colleges, however, were far less likely to borrow money for college.

"The good news is most students repay their student loans and it does not kill them," said Jacqueline King, an analyst at the council. "A student loan is not like car loan. It's an investment in your future. You'll have increased earning for the rest of your life.

"So students should not shy away from borrowing for college. But they should economize on their living expenses. You want to balance your borrowing with your future earning potential and your level of comfort with the debt."

Debt is not necessarily inevitable.

Brandon Davis, 18, of Philadelphia and a freshman pre-med student at Pitt, avoided taking out any student loans by applying for an assortment of small scholarships that more than cover all his college costs.

"Early in life my parents impressed on me that I would go to college," he said. "But also that I wouldn't take out any loans because they didn't want to pay it back and they didn't want me burdened with debt, either."

For humanities majors such as Ms. Rivera, a graduate degree often is needed to find a good-paying job in their fields, which is what she is considering. Her Stafford and Perkins student-loan obligations will be deferred if she follows through on plans to attend grad school this spring at Pitt for a master's degree in library science.

"I enjoy serving," Ms. Rivera said. "There's lots of moving and I stay busy. If I were not going back to school, I'd be looking for a more career-type job, but since I am, waitressing is just something to keep my head above water and pay my bills until I go back and get a graduate degree.

"Unless you have a degree that will allow you to get a good-paying job right after graduation, I wouldn't advise taking on too much student-loan debt," she said. "I'm hoping next year when I get my master's degree I can get a good job and be on my way to stabilizing my life."

John Heller, Post-Gazette
Brandon Davis, a freshman at the University of Pittsburgh, avoided taking out student loans by applying for an assortment of small scholarships.
Click photo for larger image.
Debt Tips:

How to keep a lid on your college debt



Tim Grant can be reached at tgrant@post-gazette.com or 412-263-1591.


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