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Erin Bailey Photo
Erin Bailey is among college students facing mounting student loans. (Photo Alyssa Milazzo)

Student Loans Strapping Today's Graduates More than Other Generations

By Alyssa Milazzo
@RedLineProject

Posted: Friday, Feb. 28, 2014

Erin Bailey is sitting on $45,000 of debt after graduating from the University of Illinois at Urbana-Champaign. A year after graduating she has decided to go back to school for her masters degree at DePaul University -- and her debt will continue to increase.

There is no escaping it: If you want a higher education you pay for it, plus interest.

Bailey graduated from Illinois in May 2012. She had three loans:

  • A government loan with an interest rate at 6.8 percent.
  • A parent-plus loan through Sallie Mae with a 7.9 percent interest rate.
  • A private loan through Chase, at 8.9 percent interest.

According to the United States Treasury Department, the Unites States is currently in $17.16 trillion of debt. The public holds around $12.19 trillion of that debt, with the rest due to intergovernmental holdings. Around $1 trillion of that debt is student loans.

John Morgan had a nine-semester college career at University of Iowa and graduated in December 2006. Each year he would take out two student loans, a small Federal loan and then a larger private Sallie Mae student loan. Those loans covered tuition, room and board.  

The American Student Assistance website states that there is roughly $902 billion and $1 trillion in total outstanding student loan debt currently in the United States. The Federal Reserve Bank of New York reports $902 billion while the Consumer Finance Protection Bureau reports $1 trillion.

“I have such a large burden of debt that I have a difficult time saving money,” Morgan said. “I can’t save for a new home. I don’t have the capital to start a new business. I’m not purchasing a new car anytime soon. I don’t have extra money to invest into the market. All of those things are things that close friends of mine with higher educations and no student loan debt can do.”

Morgan’s federal loan ended up consolidating into $20,131. This student loan did not accrue interest throughout college, but is currently is at a 6.375 percent fixed rate. The Sallie Mae loans did accrue interest during his college career and are all adjustable rates. The total for his private loans when he graduated was $88,150. Morgan accrued almost $33,000 in interest before paying anything toward his loans.

According to the Federal Reserve Bank of New York, student loans surpass the total credit card debt, which is at $693 billion, and total auto loan debt, which is around $730 billion.

The amount of student debt is not predicted to slow down anytime soon, analysts say. The number of students attending college continues to rise, and so does the cost of tuition.  With the economy in trouble and the amount of jobs available for the sea of college graduates, the odds do not seem to be in their favor.

“My starting salary was $27,500,” said Bailey, 23. “I feel like that is not enough for someone with a college degree, but because I had a mountain of loans to pay back I took it.”

The ASA reports, about 20 million students attend college every year; around 12 million of those students borrow money yearly to pay for school.  As of today, the ASA also reports that there are approximately 37 million students with outstanding student loans.

“When I graduated I had about $38,000 in loans,” said Jenn Belcher, a 24-year-old who graduated from Bradley University. “The amount I still owe, to this day, with paying since I graduated and even before, is $37,000. “

Belcher has two loans, one with the government and a private loan with Discover. The interest rate on the government loan is at 6.8 percent and the private loan is at 3.25 percent.

“I just realized this! “ Belcher said. “It’s all interest! This makes me want to cry.”

As of the first quarter of 2012, the under 30 age group has the most borrowers at 14 million, followed by 10.6 million for the 30-39 group, 5.7 million in the 40-49 category, 4.6 million in the 50-59 age group and the over 60 category with the least number of borrowers at 2.2 million for an overall total of 37.1 million, the ASA reports.

According to the Consumer Financial Protection Bureau, students borrowed $117 billion in just federal student loans last year. Students are also borrowing from private loan companies like Discover, Sallie Mae, Chase, PNC, etc. The CFPB states that the private loans don’t have the income-based repayment and deferment options that federal student loans have. The interest rates of these private loans can also be 8 percent or higher. College is supposed to help students have a successful future, but many interviewed said it has the opposite effect.

“I have questioned if it was even worth it to get my undergrad,” Bailey said. “When I graduated, I struggled to get a decent-paying job. In this job market, I feel like my undergrad education was more of a burden on me with the resulting student loans than a blessing that would lead me to a good job.”

Bloomberg BusinessWeek reported that before the recession, 30-year-olds with student debt were more likely to have car loans and mortgages than the people who didn’t have student loans. That quickly changed as the economy did. Bloomberg also reports, home ownership of all 30-year-olds started falling, but even more so for student borrowers. Around 2011, people without student debt were more likely to have a mortgage than those with student loans. By 2012, the home ownership rate for student debtors was almost two percentage points lower than that of non-student debtors.

“I thought about moving out in summer 2013, but knew that was not possible,” says Bailey. “With my debt where it is right now, if I were to move out I could not afford the minimum payments. If I lowered the minimum payments I would just extend the life of the loan and the amount owed.”

Student loans not only have an impact on students with debt, but on the housing market as a whole. According to Time Business and Money, high levels of student debt threaten the residential real estate market and have for many years. They also reported that, three-fourths of the fall in household market could be directly correlated to student debt.

“If a husband and wife are purchasing a home, if one of the spouses has student loans, they are not on the loan/mortgage,” said Carolyn DeSantis, who has 24 years of real estate experience. “This is going to create a huge problem in the next three to five years because these generations with student debt are going to cause the housing market to slow. The government will have to do something like they did with the short sales and foreclosures.”

The impact on the housing market is the most troubling part, one expert said. Many recent graduates don’t have the disposable income or the credit score needed to buy a house, said Rohit Chopra, student loan ombudsman at the Consumer Financial Protection Bureau. while speaking at a recent conference. So they boomerang back home.

“I do not feel comfortable moving out of my parents house because of the amount of debt I am in,” Bailey said. “I do not have that much extra money despite living at home for free and working a full time job.”

The Chicago Tribune recently reported, a recent report by Pew Research Center, using Census data, found that last year, 36 percent of adults between 18 and 31 years old were living with their parents, the highest share in at least 40 years.

“Pretty much I am stuck between a rock and a hard place,” said Mike DeSantis, who is currently a third-year student at John Marshall Law School. “If I move out right after I graduate, I might not be able to pay all of my bills because of my loan payments, but if I don't then I will be a 25-year-old attorney living with his parents, which is kind of embarrassing.“

DeSantis graduated from Northern Illinois University in May 2011. During his college career he took out three government loans that totaled $21,500. He currently attends John Marshall Law School, where he will graduate in May 2014. DeSantis has taken out five loans total during his law school career, four government loans and one private loan.

His government loans total $45,508.14 and his one private loan totals $19,500. Between both government and private loans he owes  $86,508.14 plus $3,852.48 in interest to date. DeSantis expects when he graduates to be around $100,000 in debt because of student loans.

“Repaying a student loan should be simple,” CFPB director Richard Cordray said in a statement, according to Times Business and Money. “When servicers process payments to maximize fees and penalties they undermine the trust of their customers. Student loan borrowers deserve better; they deserve transparency and accountability.”

Students are not only paying back the money that paid for school, but double, sometimes triple that amount because of interest rates. Interest rates range from 3 percent to 11 percent. 

In regards to private student loans FinAid.org says, lenders rarely give complete details of the terms of the private student loan until after the student submits an application. This helps prevent comparisons based on cost. For example, many lenders will only advertise the lowest interest rate they charge, which are for borrowers with good credit scores.

According to US News, Interest rates on unsubsidized Stafford loans, have held steady at 6.8 percent since 2006. The interest rate on PLUS loans have been fixed at 7.9 percent since 2006. In the future, students taking out a PLUS loan could see annual interest rates as high as 10.5 percent.

“The lowest point of all of this was when I realized that I lose more than $5 a day in interest to the government,” says Bailey. “I pay so much on my student loans at one time because I'm trying to save myself money in the long run, but it's very disheartening when the interest rates are as high as they are.”

Bailey said she paid off both of her private student loans with Chase and Sallie Mae because the interest rates were so “astronomical.” She still owes $27,000 to the government. That number is going to continue grow despite her efforts to get it down.

“Because I was unable to get a good paying job out of college, I have decided to get my master's degree at DePaul University,” Bailey said. “This has required me to take out more loans through the government.”

Bailey’s new loan has a 5.4 percent interest rate. She is unable to pay off the original loans she had from her undergrad because of the way the government distributes her monthly payments.

According to a Huffington Post article, in 2012 roughly 730,000 people got a masters degree and it’s predicted that 2.2 million master degrees will be received in the next few years. Students like Bailey and DeSantis, who are furthering their education after college, are becoming the norm.

“My future doesn’t look too bright at this point,” Belcher said. “I have a lot to pay off and can’t do anything else with my life right now because of the amount of money I am in debt. My Student loans are holding me back, big time!”  

With an unstable economy, it’s hard for anyone to have security. Losing a job while sitting on a mountain of debt is not an easy task. Morgan lost his job for 18 months. After he lost his job, he put his loan into forbearance until he found his next job. 

During those 18 months, Morgan’s loan accrued over $16,500 in interest.  He now owes more than what he originally graduated from college with. When he started repaying his loan after he lost his job, the principle loan amount had increased to $132,000.

“With the job I am currently in 53 percent of my gross income goes to taxes and student loans,” Morgan said. “After I pay for rent, auto, insurance, and essential living expenses, I’m essentially living paycheck to paycheck.  And that’s living a truly modest life style.”

Forbearance and deferment are two options students have when they can’t make payments. Both are done to give the borrower time to make up for overdue payments.

According to the ASA, deferment and forbearance are both preferable to missing loan payments. But, because forbearance increases the amount students owe, they suggest trying to first qualify for deferment, especially if a student has subsidized loans.

No matter what the situation is, students are drowning in debt with sky-high interest rates. If you want a college education you have to pay the price, literally.

“I think education is important, but under the current education system and post graduate job market, I don’t think the cost incurred is worth the value of the education we are receiving,” Morgan said.

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