Student loans offer an opportunity for financing one’s education, but these loans have a dark side, and for some having gone to college turns into the biggest mistake of their lives.
At least 200,000 Americans are enduring silently the corrosive effects of student debt, if the numbers of subscribers of a Facebook page created by student loan forgiveness advocate Robert Applebaum are any indication. Like most Americans who take on significant debt, all these folks wanted was to improve their lives. But the student loan system, with its punitive rules and no provisions for life’s changing circumstances, makes that hard, if not impossible, for many do change their lives for the better. And when student loans go bad, lives can be destroyed.
The potential for trouble has grown with the prevalence of student loans as major sources of financing a college education, the traditional path to a better life in America.
Current economic problems have led to a record of defaults—over 9%, the most since 1998—as thousands find themselves unable to make monthly payments. Often running into hundreds of dollars a month, monthly payments become an impossible burden when the jobs that borrowers planned on getting after graduation, the jobs that were going to cover the tens of thousands of dollars in student loan debt, simply aren’t there.
But even before the current economic crisis, student loans posed enormous financial burdens on those who relied on them in order to finance their education. It is not uncommon for students to carry tens of thousands of dollars in student debt, which usually might translate into hundreds a month in payments. Such circumstances may vastly reduce the student’s options, even forcing them to move back home.
Even the more marketable majors do not always lead to financial security. It is possible to carry an enormous debt burden even when one graduates from hot and in-demand fields like nursing or other medical specialties. Debts of over $100,000 in such situations are not uncommon, especially when students with prior degrees and associated debts re-train. Enormous debt forces such individuals to not only work longer, but it causes them to bring home a lot less pay. Few student loan lenders are interested in working with borrowers toward a more affordable repayment scheme.
Those with professional degrees, like lawyers and doctors, face even greater financial woes—often owing amounts exceeding 100,000, they become de facto debt slaves, having to work long, hard hours just to meet the payments. According to a Forbes article “The Great College Hoax” by Kathy Kristof, attorneys Joe Kellum and his wife accumulated nearly $200,000 in combined student loan debt. Despite their high salaries and a never-ending stream of payments, the debt crushed their marriage. “Two people with this much debt just shouldn’t be together,” Kellum said.
If living with student loan payments was hard in good years before the Great Recession, the recent economic downturn has made it even harder. The crisis has led some to simply break down financially and become unable to make any payments, making the default rates skyrocket.
Though defaulted loans are written off by the lenders, the money is still owed by the debtor, and the total amount of the debt increases dramatically because of the penalties. Default also ruins credit, making it even more difficult to obtain employment as companies will not hire those with bad credit history, even for menial jobs.
But defaults are good business for the lenders, Alan Collinge said in a Democracy Now! interview: once in default, a loan in default often triples. Collinge is one of those whose life has been complicated by the presence of a debt that can’t be reasoned with. Unlike many who remain silent, Collinge is one of a handful of people who have decided to organize other borrowers in trouble in order to push for reform of the system. Author of a book on the problems of student loans, The Student Loan Scam, Collinge has become an expert on the realities of the dark side of student debt.
When a loan defaults, Collinge said during the interview, the lenders are paid nearly book value for the loan by the federal government; then they turn around and get a second bite at the apple by stripping the borrower of any money he or she happens to have as they try to collect on a debt that they also get to dramatically inflate through various penalties. But trouble only begins for the debtor at this point.
Current the law makes it possible, for example, for lenders to garnish wages, even Social Security payments, without first getting a court order in many instances. Lenders can even suspend professional licenses. Instead of making it easier for debtors to obtain employment and repay their debts, the system is designed to create barriers to repayment, ensnaring the debtor in a Catch-22 situation.
Bankruptcy, for instance, while an option for many, even those who have not borrowed in order to improve themselves, is practically impossible for the student loan holder. The student loan debtor must show financial hardship, which involves convincing the court that continuing to pay on the loans would have serious consequences. The legal process is Kafkaesque. It involves suing one’s creditors, and may even require hiring an expert witness. While the creditors bring to the table skilled counsel, ironically on the taxpayer dime, the debtor, usually without funds of her own to hire competent counsel, must navigate complex legal paperwork and court procedure and must make legal arguments—activities which require a law degree to juggle successfully—all on her own. In many situations this exercise fails, leaving the debtor in an ever-bigger financial mess. According to Collinge, suicide and expatriation are not uncommon outcomes when desperate borrowers are left without options or hope.
Part of the reason why student loans have become such a menace is also the reason why they are so prevalent as funding sources for college students. It has to do with a promise of a better life.
It is easy to be seduced by the promise of higher education, and not without reason; it has been an article of faith among many that going to college is a sure-fire way to a better life. At first glance, this faith seems well placed. According to a 2007 College Board report, “Education Pays: The Benefits of Higher Education for Individuals and Society,” for instance, in 2005, a worker with a college degree earned 62 percent more than a high school graduate. On average, the typical bachelor’s degree holder can earn 61 percent more over a 40-year working life than the high school graduate. In cumulative terms, a bachelor’s degree holder can earn $1 million. And those with more education earn even more. It is also clear from the report that while earnings have declined overall, for those with a college education that decline has been the smallest. And according to the 2002 Census Bureau report, “The Big Payoff,” the earnings outlook for graduates is even more primrose: the bachelor’s degree holder can earn $2.1 million over a lifetime.
With so much to gain, and seemingly little to lose, it is hardly surprising that college enrollments have exploded over the last three decades, by nearly 20 percent, according to the same College Board report. With rising enrollments college costs have also risen dramatically according to the same report. Costs of professional studies, such as law school, for instance, have accelerated even more rapidly—by 267% for in-state tuition—in the last decade, according to “Law School Debt Among Lawyers” by Gita Z. Wilder, the senior social science researcher for the NALP.
But despite the rising enrollments and skyrocketing costs, federal student aid, such as Pell Grants, failed to keep pace with the demand. This lack of grant funding in combination with a rise in enrollments has translated into an explosion of student debt in the last two decades. In 1984, for example, the average student carried $2,000 in debt after graduation; by 2004, however, that debt had skyrocketed to nearly ten times that amount.
To some, owing $18,916 may not seem like a lot—it is less than the price of an entry level car—but one has to look at the fact that real wages have remained stagnant in the last decade. While many thought that the last two great bubbles (the dot-com bubble and the housing bubble) meant rising prosperity for all, in fact America’s middle class was being squeezed by falling incomes since the 1970s. And in the light of that fact, student debt has actually become much higher than the numbers might suggest because students are facing a far higher debt-to-earnings ratio.
Although debts as high as $40,000 may seem manageable if one is able to secure high-paying employment after graduation, even in an ideal situation it takes a decade for the student to work that debt off. But what happens when that person’s life takes an unexpected turn? Sickness, unemployment, any substantial change in life circumstance can usher the debtor into a financial apocalypse and personal despair.
Little help is to be expected on the horizon from Washington. Despite billions being doled out in bailouts, student debtors have been left holding the bag. Unlike homeowners who walk away from their homes, those who took on debt to improve themselves are stuck with the financial burden forever, hounded viciously even if they can’t pay. The message of the system of higher education lending is simple—don’t go to college if you need to borrow. It can ruin your life.
Not everyone, of course, considers stories of personal financial despair to be indicative of a larger problem. According to a recent article, “A Lifetime of Student Debt? Not Likely,” by Robin Wilson, appearing in the May 2009 issue of the Chronicle of Higher Education, the voice of America’s higher education industry, most people borrow amounts that they can manage and only a “vocal minority” has problems with the repayment of their loans. Wilson holds up as an example the case of a young woman who must live with her parents because the costs of her student loans prevent her from living on her own, writing that this is the normal, silent majority that is coping just fine.
Colleges, while providing some advice about the impact of the loans, ultimately can only advise. They can’t prevent the student from borrowing.