Student loans were a fact of life for Marjorie Dillon and she was OK with that -- even though she didn't keep close track of how much she borrowed or completely understand the agreements. She and many of her former classmates at Robert Morris University in Moon relied on loans to pay tuition and expenses.
Ms. Dillon, 26, of Coraopolis, was the first in her family to attend a four-year university and loans were the only way to finance the business administration degree that would be her passport to a better life.
Stafford loans: These are government guaranteed, fixed-rate student loans. Repayment begins 180 days after graduating or leaving school. Loan amounts are limited to $3,500 for first-year students. Stafford loans can be either subsidized or unsubsidized. Interest on subsidized student loans is paid by the federal government while a student is in school and for up to six months after graduating or leaving school. Unsubsidized Stafford loans are available to any student regardless of need. The government does not pay interest on those loans, however.
Perkins loans: These are need-based student loans offered through the U.S. Department of Education. The currently carry a fixed interest rate of 5 percent for the duration of the 10-year repayment period. Perkins loans have a 9-month grace period, so that borrowers begin repayment in the 10th month after graduating, falling below half-time status or leaving college.
Parents Plus loans: Parents can borrow money at a fixed rate, up to 100 percent of the education costs, minus any aid the child receives. No collateral is necessary for the loans and repayment begins 60 days after the loan is dispersed.
Private student loans: Banks, lending companies and other private entities issue these loans in the student's name or in the name of a parent or sponsor, usually with a co-signer. These loans usually have variable interest rates and higher borrowing limits.
But six months after graduating with her bachelor's degree, Ms. Dillon is making $7.25 an hour plus tips serving beer at a bowling alley, working 25 to 30 hours a week. She's nearly $120,000 in debt, behind on her bills and, despite her best efforts, cannot find a better job. Her 80-year-old grandmother co-signed for the loans and could lose her house in North Fayette if the debts are not repaid.
"Honestly, I wouldn't have gone to school if I knew I would be in debt the rest of my life," Ms. Dillon said. "I won't be able to ever own anything. If you look at my credit report, it's (loaded) with Sallie Mae loans."
The financial crisis she is facing provides a snapshot of the worrisome outlook confronting many college graduates who find themselves juggling a mountain of student loans and other forms of debt in the early stages of their working lives.
Her case might be considered a worst-case scenario. The average cumulative debt for four-year college graduates has reached $22,656, according to Finaid.org, a leading Web site for financial aid information.
Some relief is on the way thanks to a new federal student loan repayment plan that will set monthly payments based on how much borrowers make and the size of their families instead of how much they owe. In some cases, graduates will make no monthly payments if their income falls below a certain level. And after 25 years of payments, any remaining balance is cancelled.
But the reduced income repayment program is only available for federal student loans under Stafford, Grad Plus and federal consolidated loan programs.
Ten of Ms. Dillon's loans totalling $108,639 were private signature student loans through the SLM Corporation -- commonly known as Sallie Mae -- which cannot be consolidated, forgiven, deferred or erased in bankruptcy. Two of her loans, totalling $9,000, are federal government loans.
Even if the variable interest rates stay frozen or never go up during the 25-year life of the loans -- which is unlikely -- her monthly payments on the $117,600 borrowed will climb to more than $1,100 and she will end up repaying at least $270,000.
For hardship reasons, Ms. Dillon has been allowed to pay only the interest for the first two years, which amounts to $670 a month.
Beyond illustrating the perils of student loan debt, Ms. Dillon's story also shows the consequences of a lack of financial planning, missing federal aid application deadlines and not meeting academic requirements for federal programs.
Officials at Robert Morris were willing to discuss Ms. Dillon's case only after she signed a consent form allowing the institution to release her education records to the Post-Gazette.
"In this case, the student frequently came into the financial aid office after school had begun and in some cases on the date bills were due and asked what her financing options were," said Mike Frantz, vice president of enrollment at Robert Morris.
University records show she failed to complete the Free Application For Federal Student Aid (FAFSA) on time for the first three years she attended Robert Morris, starting in fall 2005. That meant she didn't qualify for federal student aid and state grant money through the Pennsylvania Higher Education Assistance Agency.
After the spring 2006 semester, Mr. Frantz said Ms. Dillon lost her eligibility for government aid because her grade point average fell below a 2.0. To make matters worse, she failed to pass at least two thirds of the academic credits she signed up for, another requirement for eligibility.
Ms. Dillon also borrowed more than the amount needed to take classes.
Mr. Frantz said she borrowed $43,290 in excess of the cost of tuition and fees to attend Robert Morris. Full-time undergraduate tuition for the 2009-10 academic year costs $19,950. That does not include room and board for resident students. Ms. Dillon was not a resident student.
"I can assure you she was told about the ramifications of borrowing," Mr. Frantz said. "She satisfied the entrance loan counseling requirements which the federal government requires to make sure they understand the implications."
Ms. Dillon's college debt has ignited an emotional family drama that which includes her grandmother and her disabled father who raised three children as a single dad. He lives with his mother and receives $598 a month in government benefits.
Ms. Dillon managed to make the first payment on her loans due July 3 but that meant other important bills went unpaid. Her electricity was cut off by Duquesne Light Co. for $612 in past due bills in late July. Her refrigerator and kitchen cabinets are essentially bare.
"I can't remember the last time I went grocery shopping," Ms. Dillon said. "No one should be in this position. No one should be this stressed out every single day."
Although she does not qualify for food stamps, she does receive government help for her 9-month-old daughter through the Women, Infants and Children (WIC) nutrition program. Every month, she gets 10 cans of baby formula worth $13 each and 15 four-ounce bottles of juice. A younger sister has moved in with Ms. Dillon to help care for her daughter since she has no way of paying for child care.
Financial adviser Paul Brahim of BPU Investment Management, Downtown, recently evaluated Ms. Dillon's income and expenses at the request of the Post-Gazette and concluded that she must take dramatic steps to get her budget under control.
He suggested she move in with her grandmother if possible to save $600 a month on rent and eliminate the $120-a-month cable and Internet bill.
She could erase the $329-a-month car payment by selling the vehicle and using public transportation. She also should try to renegotiate the interest rate on her credit cards to reduce those $300-a-month payments. Her $150-a-month cell phone plan could also be reduced, he said.
Ms. Dillon said she has learned a lot about how credit and interest works while looking for solutions to her dilemma.
She counts pennies to make her payments and crunches numbers all the time. She figures if she could get a job making $30,000 a year, that would give her about $900 every two weeks that would all go into the bottomless hole that is her student debt.
"I wanted to be better off than my dad," she said. "He struggled with us and I knew I needed to get an education to get a nice job, nice house and drive a nice car. Now one whole paycheck goes to Sallie Mae for the next 25 years of my life.
"You dangle a steak in front of a dog and he will eat it. Every student takes out extra for living expenses. We don't work. But I'll do what I have to to make it. Yes, it will be hard. I've only made one payment and it's already hard."
Tim Grant can be reached at firstname.lastname@example.org or 412-263-1591. First Published July 29, 2009 4:00 AM