When students are growing up and going to school, the possibilities in life seem endless. Students are encouraged to work hard and go to college if they want to lead a successful and productive life. The problem with this scenario, however, is that it is becoming increasingly difficult for young adults to afford college. Couple that with the fact that the national unemployment rate stands at 8.6 percent (11.7 percent in California), and the prospects for graduating students does not look so great.According to the a national survey conducted by the institute for college access and success, adults ages 18-34 believe a college education is more important than it was for their parents' generation, but that it has become less affordable in the last five years, in addition to leaving school with too much debt.
A recent student-loan debt relief plan issued by President Obama aims to ease the burden on millions of students. It allows 1.6 million students to cap their loan payments at 10 percent of their discretionary income starting in 2012. It also forgives the balance of student loans after 20 years of payments. Current law allows students to limit loan payments to 15 percent of income, forgiving debt after 25 years of payments.
In a related move, US Department of Education, which now administers all federal education loans, is giving borrowers the option of consolidating federal and private loans at reduced rates.
Maria Soto, a 26-year-old law student at the University of La Verne, plans to do just that. Facing the prospect of $130 thousand in student loans, she estimates that it will take her ten years to pay off her debt if she consolidates her loans.
“I know it’s a lot of money, but I can’t let that stop me from doing what I want to do,” she said. “Ten years isn’t a long time, but I definitely think it’s possible.”
Kristan Venegas, associate professor of Clinical Education and an expert in financial aid at the University of Southern California, agrees with Soto’s outlook.
“The ability to consolidate and reduce interest rates is a policy that will have immediate impact and can affect up to 6 million borrowers--but they have to do the follow up and go through the consolidation process,” she said. “I think that's one of the keys to making these different parts of the plan work--meaning that borrowers have to make the phone calls, fill out the forms, and do the follow up to be able to participate in these programs.”
While Obama’s plan is ambitious, it is nonetheless flawed.
“Students who have already graduated are ineligible,” said Mark Kantrowitz, financial aid expert and publisher of finaid.org. “You must have at least one loan in 2012 or a later year to qualify.”
For those who have already graduated, Kantrowitz offers a few suggestions.
“If you encounter financial difficulty, use an economic hardship deferment if the problem is short-term, otherwise use an alternate repayment plan like extended repayment or income-based repayment to get more affordable payments,” he said. “Talk to the lender before you default, because you lose options if you default first.”
According to the U.S. Department of Education, 8.8 percent of student loan borrowers who entered repayment in 2009 had defaulted by the end of 2010.
Although students now have a lot more options to ease the load of debt repayment, some continue to worry.
Daniel Glorae, a 25-year-old Stanford graduate who currently owes $80 thousand in student loans, sometimes thinks twice about his decision to attend a private school.
“I knew it was expensive, but I had no concept of what debt like that meant,” he said. “Everybody just told me not to worry about it and not to pass up the opportunity because of money. If I knew then what I know now, I would have applied for way more scholarships, and if I knew I was going to go into forensics I may not have attended Stanford at all.”
Others, like Soto, look at things differently.
“I knew what I was getting myself into when I decided to go to private school and have no regrets,” she said. “If I had to do it all over again, I wouldn’t change a thing. At LMU (Loyola Marymount University) I met professors and attorneys who gave me experience in the field of law, which allowed me to get an academic scholarship to La Verne that pays for 50 percent of my tuition.”
As of June 2010, students owed nearly $833 billion in unpaid loans, with the average graduating student carrying $27 thousand in debt.
Dave Dowell, expert in higher education at California State University, Long Beach, says that students who are thinking about going to college should think very carefully and consider a few things before borrowing money.
“Completing the degree is essential in order to see return on your investment of money and time; the absolute worst case is to run up debt and then drop out,” he said. “Attending a community college may not be cheaper because it will reduce the chances of completing your degree in addition to delaying the time it takes.”
He adds that return on investment may be greater by attending a less expensive four-year school than either a more expensive four-year or even a community college.
As it stands, the amount owed on student loans exceeds the nation’s credit card debt, and unlike mortgage or credit-card debt, student loans can’t be eliminated through bankruptcy proceedings.
“The government has strong powers to compel repayment, so you won’t be able to get away from the debt,” Kantrowitz said. “If you default, the government can garnish up to 15% of your take-home pay administratively, intercept federal and state income tax refunds, and block renewal of a professional license, among other things.”
