The unbearable heaviness of student debt.

Maybe you read the article about the doctor with $555,000 of student loan debt. In addition to that horrific sum (which started out as $250k in 2003) were a few other scary numbers:

  • A laid-off factory worker whose $300 unemployment check is garnished down to $180 because of the PLUS student loan she took out for her son.
  • A woman who after 14 years of deferment and forbearance (and bankruptcy) saw her Sallie Mae loan leap from $28,000 to more than $90,000. Her monthly payment was once $230; now it’s $816.
  • An estimated $730 billion of outstanding federal and private student-loan debt exists, and just 40% is being repaid. The rest is in default, deferment or forbearance.

Gargantuan loans taken out with no clear idea of how they’ll be repaid. Sound familiar?

Actually, there’s a crucial difference between subprime mortgages and student loans: You can’t return your diploma to the school and walk away from college debt. In fact, such debt can’t even be discharged in a bankruptcy. With few exceptions, student loans stay with you until you pay them back.

Some of the people who find themselves in trouble have made costly mistakes, such as choosing a pricey faraway university over cheaper local options. But such decisions aren’t made in a vacuum. They’re made because the students grew up in a society that encourages us to go after the top-drawer stuff — homes, cars, gadgets, education — whether or not we can actually afford it.


Buy now, pay for decades?

Or whether we actually need it. The old belief was that college loans were always “good debt,” always worth the pain because a degree qualified you for higher-paying jobs. But that’s not as true as it once was, according to an article called “Is college worth the money?”

“Bottom line: College, particularly an expensive private college, is a high-risk investment which, for many, won’t pay,” personal-finance columnist Scott Burns writes.

What I’ve heard, and also read on MSN Money message boards, is that high school students are urged to apply to the “best” schools. Sure, you’ll have to take out loans, they’re told, but everybody does that.

More and more, that means private loans. Tuition has risen fivefold since the early 1980s and federal student loans can’t keep pace. That’s why private loans now account for 22% of all college financing, compared with only 5% in 1997.

These loans are often marketed directly to teens, with no advice or oversight from the schools they select. Yes, I know that you’re technically an adult when you graduate high school. But for heaven’s sake, picture yourself at age 18. If you were lucky, your parents had tried to instill an idea of the true cost of any loan. But that doesn’t mean you really understood.

I’d be willing to bet that a majority of 18-year-olds are so naïve, and so dazzled by the prospect of Harvard or Stanford or Vassar, that they simply sign on the dotted line. After all, a diploma from one of the “best” schools automatically means a huge salary upon graduation. They’ll pay it back then.

Besides, some parents also buy into this hype. Maybe they think that a “name” school is always preferable, or maybe they want to brag that Junior is going to Princeton. Or maybe they truly want what’s best for their children and figure that borrowing for college is the only way to achieve that.

I’m picturing one possible line of reasoning: After all, we’ve emphasized good financial habits such as living below your means, creating an emergency fund and saving for retirement. Surely that will offset the fact that the kids are going into hock for a decade or so.

This is especially sensitive if mom and dad feel they neglected any kind of serious college planning — they need to believe that Junior can make it on his own.

Which, I guess, is better than the worst-case scenario: These parents taking out loans to help pay their kids’ tuition, neglecting their own financial well-being.


Lives put on hold

I believe that American high-schoolers have been sold a bill of goods — Top schools mean top dollars later on! – whose payments are impossible to make. Liz Pulliam Weston, a columnist for MSN Money, heard from a mom whose son graduated $75,000 in debt. Now he’s a teacher making $24,000 a year. His loan payments are $1,400 a month.

And what about the ones who don’t luck into decent jobs? They do temp work or pull coffee for $8 an hour. They either share a place with as many roommates as zoning allows, or land back with Mom and Dad.

How will this generation manage to buy cars if they need to commute? Or get home loans? Or raise families? Or fund even a minimal retirement?


Teach your children well

Just as with the subprime loan mess, it’s tempting to dismiss drowning-in-debt students as a bunch of nitwits. They knew the cost going in. Why in the world would they sign up for loans they might not be able to afford?

Because that’s the American way: Buy now, and never mind the “pay later” part. Just buy. If you want it, you should have it.

To all of you parents of teenagers: I am begging you to read Liz Weston’s writings on college loans. Discuss the subject with your kids. If they’re still bent on “dream” schools, be very clear about what you can and cannot contribute. Help them decide whether four years of prestige is worth a decade or more of grueling monthly payments.

And hey, all you high-school seniors: Itching to get off to college? Can’t wait to get out of the house? Imagine coming back to your childhood bedroom at age 22. That room might seem a little suffocating. Or possibly that’s just how a hundred grand worth of debt feels to someone who hasn’t yet earned a dime.

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  1. I must be a little heartless, because I don’t have a lot of sympathy here. I know that it is a tough job market, but don’t pick a ridiculously expensive school if your degree is only going to start you out at $24k. Parents & children need to run the numbers before the student sets foot on campus. Just as some people should have run the numbers before they bought those mortgages they couldn’t afford.

    USA Today did an article similar with a woman on the front cover who was upset because her degree in psychology cost her $80 k and she needs to go on to get a masters to do anything with the psych degree. Right now she is working at $8./hr. And of course she can’t pay her loan. I wanted to scream, “did you think $80k was just going to magicaly appear at the end of your 4 years”.

    Running the numbers before hand won’t guarantee this will not happen, but it might make people reconsider their expensive decision. I enjoyed the post.

  2. I like Liz Weston’s advice… doesn’t she usually say college loans are good, but big college loans are bad? Something like, no more loans than a year’s income post college? That seems so reasoned compared to the advice that says to get no loans (which will really hurt upwardly mobile low income kids) or to go all out (which is itself disastrous).

  3. I think there are flaws in the college financial aid process. Colleges (at least my college) tend to give the biggest financial aid packages to incoming students and expenses then climb as you go further towards finishing your degree. So maybe your first year you had $5,000 in loans, but next year it’s $7,000 and the next it’s $8,000 and the last it’s $10,000. Suddenly your degree is more expensive then you thought it was going to be. You aren’t left with a lot of options. The further you are in your degree the harder it is to transfer to a cheaper school (colleges will only transfer so many credits and/or will not count classes from your major toward that major at another college). You can drop out and be left with all the student loan debt you racked up so far with no job prospects because you don’t have a degree. Or you can take out the loan and struggle with the debt after you graduate. Take into account you will probably have to work for a year (granted this usually starts during your last year of college) for no or very little pay as an intern before you get your first real job out of college for under $30,000 a year for many majors. Yes there are many cases of students who pursue majors with poor career options of take out too much in loans (over one years expected salary). But when you go to college you don’t know how much it’s going to cost for the degree, only you’re out of pocket expenses for the first year, which makes it hard to predict how much it will be in the long run.

  4. I’m seeing a bit of a shift in the last couple of years–in Alaska we have the UA scholar program which means you get a really good deal on college tuition in the state university system if you graduate in the top 10% of your class. Five years ago, the top ranked kids from this town mostly went to very expensive private schools. The last couple of years, quite a few have chosen to stay in state and take advantage of the program which means they will most likely have no debt from undergrad. I’m guessing they have sensible parents explaining the money factor. It gives you a great deal more freedom to choose a graduate program if you don’t already have a huge debt from the first four years.

  5. Coupon Ninja

    I went to college as frugally as possible, borrowing only the smallest amounts to get my degrees… which I am happy to say is right at 17K right now.
    I didn’t go out and buy all sorts of wacky fun stuff with my loan money, if there ever any leftovers, they went to books… or my first computer and later my laptop. But I also worked during my college years, only taking off to do my student teaching.
    And as a result, I only have a small amount of debt. But I still have yet to find a job in my field, I graduated as an art teacher as the economy began to bottom out in 2008.
    And while we have made my loan payments, my husband lost his FT job with benefits last Monday, so it’s making that $165 look a little rougher.
    Thankfully we both still have our PT grocery store jobs… at least it will pay the bills… and I have become a Nazi Frugalist as of late.
    It will be nice once the college loans do pay off…
    when I get that magical teaching job.

  6. I think these loans are highly predatory. They appear on the surface to be student-friendly, but they’re really tar pits from which the graduate can’t escape. And just imagine grabbing some poor woman’s freaking unemployment insurance to gouge the money from her! Talk about your pound of flesh.

    By the way, a propos of Kristia’s aghast query, “I wanted to scream, “did you think $80k was just going to magicaly appear at the end of your 4 years”: Yes, that’s exactly what they think. It’s what students are led to believe. One friend of my son, who took an master’s of international management from an elite and very highly rated private school, graduated with $1,400/month loan payments. When, during a conversation that took place before she finished the program, I gasped at the costs she was incurring, she said she could expect to walk into a six-figure job. That is what the college was telling applicants, on the basis of what previous graduates earned.

    By the time she graduated, the economy had crashed and she was out of luck. That was two years ago. She’s living with her mother again, working a menial job that shows no sign of ever paying six figures.

    Still, there’s something to be said for an elite school. If you aspire to an elite career — the state department, for example, or the higher reaches of publishing — you had better have a degree from an Ivy or a public Ivy. Most of us, however, have no such promise ahead of us, and so would do just fine at an ordinary state university.

    Even a degree from a state university is not cheap. In-state tuition at Arizona State, hardly the finest institution in the land, will set you back $3,423 a semester, or $27,400 for a four-year degree — and that’s before you find a place to live, before you eat, before you pay the exorbitant parking fee, before you buy a laptop, before you drive down to Guaymas for spring break. Nonresident tuition and fees? $9,815 a semester; for $78,520, you’d do better to go a little deeper in debt and get a degree from a first-rate school.

    Check out Payscale.com’s entertaining comparisons of salary potential by schools. Several pages are out there, though the real report is by subscription only. This one’s interesting: http://www.payscale.com/best-colleges/top-colleges.asp

  7. priskill

    This is so timely — August and all. And it’s not just fancy private schools — as FAM above pointed out, state schools, while cheaper than Harvard, still ain’t exactly cheap. In California, the costs keep tripling — my daughter is in her last year (thankfully!!) and will have minimal loans to help pay back in what will likely be a bleak post-grad economy.
    If she thinks about grad school, she will need to scope out loans, so we have urged her to work and really investigate the field first before amassing huge debt to finance further study.
    I do not envy these poor kids graduating into such a recession!

  8. priskill

    Just a quick note to Coupon Ninja — good luck to you and your husband and hang in there! All your hard work and “frugal nazism” will surely pay off.

  9. As a fairly recent grad – 5 yrs out – trying to balance a budget with a mortgage and 2 sets of student loans from one of those “name schools”, I wish someone had told me more about loans and interest and forbearance and what having a loan with a 30 year term actually means.
    The biggest gotcha for me was that year right after graduation – you need a new place to live (no campus housing), a new wardrobe (to help get that first job), more gas for your car AND suddenly you are paying your own car insurance and health insurance and groceries and probably don’t have 3 roommates anymore so more electricity etc etc etc. It all hits at the same time – so even if your student loans total less than a years salary, most of that salary is already over utilized.

    Best piece of advice I was given ever – start at the local community college taking the course you know you can transfer to your “name school” for your sophomore or junior year. Takes some planning and research.
    Those years cost a fraction of what they would have but your diploma still has The Name on it when you add it to your resume (Harvard does mean a lot more to employers than Hicksville Community College).

  10. There needs to be so much more financial information in the high schools and this is absolutely one of them! I will not argue that a bachelor’s degree is incredibly valuable when seeking employment but where you get it from is a lot less neglible when you’re in the real world. Sure a hiring manager might stop and say “oh nice Harvard” but if you interview a mess or your resume is so-so, it’s not happening.

  11. Anonymous

    I signed, I took on the debt. I thought I understood. “I don’t need money to be happy!” (ha ha ha) My husband took on even more. Together, our MORTGAGE is less than our student loan debt.
    But we consolidated in 2003 and 2005. My loans are at 1.25%. His are at 2.5%.
    So yes, it sucks to pay $700 a month to the loans, but in the long run of inflation, I think we’re actually making money on this?
    We mortgaged our future. I can’t stay home with the baby because of the student loans. But still. 120k at 2.5% for 20 years? That’s the deal we made so we could have the careers we do.

  12. To help out we co-signed loans for our son. Needless to say he is only finding part time work and we are paying his loans! Yikes . . . . .

  13. Donna,
    This post is so well written. Thank you for writing it. I intend to copy it and hold on to it for my younger two children. My oldest child went to a state school. We all chipped in and paid for it in full, and she is now a fully employed high school history teacher. Exactly what she went to school for. We knew she would never make “big bucks”, so in state is a perfect choice.

    My second daughter is entering her senior year at another in state university. We are paying cash for her education as well. She is responsible for all her spending money, books, etc. We are paying for tuition, room and board. She is living in an apartment now, and is very frugal. In fact, we are paying less for her room and board now that she is not on campus. She will be footing the tuition bill for her graduate program (also in teaching). She already has $4,000 saved, and she was accepted into a work/study program that will be paying for 20 of her credits. She will live at home for the first year after college to pay off her car and her graduate degree. As a teacher with a masters, she will earn about $50,0o0 in her first year.

    My younger two are about 4-5 years away from college. We will help them the same way we helped out our older two. They will be responsible for their personal expenses and books, etc. We will only pay for an in state tuition, which in VA with room and board, runs about $14000.00 a year.

    There is a program that the community college is offering. Two years in the honor program then two years at one of the best VA schools. This just may be the way to go!

    Thanks for posting!

  14. It almost sounds like a deal with the devil.
    Anna is off to college in 24 days(I almost seem like a bad mom for counting). She has a job waiting and has worked some pretty sucky jobs this summer. She will probably have a few thousand dollars in debt when she graduates from EIU. But I guess I shouldn’t jinx myself by putting that number out there!
    I’m emailing this article to my son! For some reason, he wants to go to Northwestern!

  15. There is another side to this conversation which is never discussed..and that is if a parent wants to send their kids to college, then they should save as much as they can to fund it..

    They say we should avoid debt if possible..hey, we cannot borrowed to fund out retirement…so why should we “borrow to fund our college education”…

    Perhaps a case can be made for doctors (who are more likely to get a “stable high paying job”.But other than that, it is silly for a arts major to take on tons of debt…

    But perhaps “saving for college education” should be considered an added cost when one has kids?

  16. You know I’m not so sure that the people with the massive loans really went to the “top” schools (meaning Ivy League schools), because those schools often offer a lot of financial aid. I suspect that in general they went to “good” private schools as opposed to those so-called awful-by-comparison state schools.

    But I do think that many people don’t realize the impact their decisions will have on them for so many years to come….

    I saw an informal poll recently where people were asked about their biggest financial regrets. A large number of them said taking out student loans. Several said taking out loans for law school specifically. A few mentioned that they weren’t even working…

  17. While some of the points raised here are valid, I feel compelled to interject: I just graduated Harvard in May with no debt. My family is not wealthy. I come from a medium-low income single-parent household. But Harvard’s incredible financial aid program made it so that the yearly cost of my education (tuition, fees, room and board, book, etc.) ended up being less than the cost of room and board alone at the local state university. Every high school senior must carefully weigh his options, and I strongly believe that students need not take on student debt to receive great educations. But it is irresponsible in the face of the amazing financial aid programs offered by top-tier universities to counsel students against pursuing them. Harvard was my dream from the age of 10 onward. My parents spent eight years telling me I could try to get in but that I would not be able to afford to go. I tried, I got in, and Harvard made it more than manageable for me to attend. I had an unparalleled academic experience and (likely due in part to the Harvard credentials) am now being paid to earn my PhD. An amazing return on an investment made possible by the generosity and educational mission of the Ivy League. I would not advocate taking out substantial loans for college (I have never taken out any), but I also think it is dangerous to suggest that talented students limit their options before they even know what they might be able to achieve.

  18. Donna Freedman

    @Clare: I didn’t suggest that people “limit their options.” I suggested that they think twice before taking out massive student loans.
    When students are accepted they’re told what they’ll be given and what they’ll be expected to borrow. That’s the point at which they need to think very carefully about what they can pay back. A good place to start is those “college loan repayment calculators” you can find online.
    Relatively few people are going to get the “amazing financial aid” that you got. Or, for that matter, that I got: I returned to school in my late 40s and wound up getting paid to go for four years. Grants and scholarships covered all tuition, fees and books with some left over for living expenses.
    But to hold either of us up as examples would be disingenuous. Sure, it’s swell that neither you nor I paid a dime. But most people WILL have to pay. They need to be very clear-eyed about what they can afford, both now AND later.
    Thanks for reading, and for leaving a comment.

  19. I’m still paying off my first degree. I feel that schools and parents should be better at preparing their kids to be financially responsible before they make huge decisions. Yes, they will still make mistakes but they will have a better chance. I’m now working on my second degree. This time I am paying as I go. My university has a payment plan so I am able to pay my semester tuition over four months. So for less than the cost of most monthly car payments I am getting my degree. I feel slightly sorry for some people I have met who just keep taking classes via loans because they can’t afford to stop going to school because the loan payments will be more than they will make. However, continuing to make a bad choice does not help the situation. I am annoyed at several of my family members who are incurring way more loan debt by getting their degrees online instead of going to the local cheaper university. It is almost double the cost and they will not be making double. They will be paying their loans when we are in the retirement home and they are making this decision in their 30’s. Ultimately people are going to make good and bad decisions, get good and bad advice. Loans are helpful if used wisely. Sure I would do it differently at 18 if I knew then what I know now. Solutions to problem:
    1. Better financial education in high schools. (balancing bank account, budgeting, decision making skills, etc.) Loans are not a terrible thing if used logically and knowledgeably.
    2. Society changing the myth that a large university is better than local universities.
    3. Changing the myth that a degree = $$$$. Yes, it does give you a step up but it does not always produce huge income.
    4. Perhaps a let up on all the extra classes students are required to take for their degree therefor lowering the overall cost. Personally I’m still not sure why biology was required for my degree in theatre performance.

  20. And NZers complain about how hard they have it!! Here if you need a student loan, you get it from the government. One single loan. Interest is about 6 per cent, nothing if you stay in the country. None of this multiple lenders, consolidation stuff.

  21. I call student loans “gateway debt” because they remind me of how people talk about “gateway drugs.” I was always taught to pay off my credit cards every month, and I did, but once I ended up with the student loan, it just seemed like I was going to be stuck in debt for 10+ years anyway, so…. well, you can guess how that went. I know they required a really lame loan information class, but they really should require a personal finance class for every high school student, with a section that breaks down HONESTLY the amount required to go to school at different levels, and the average income. I quit school when the amount I could make in the world was no longer matching up with the student loan debt I was taking on. I have no reason to go back, and I’m okay with that, more okay than I would be with five digit student loans.

  22. The point about having to make a decision for two years, or four, with having only year-to-year finances to work with is a good one. Most scholarships also are issued one year at a time – and funding for all grants / loans / scholarships can change at any time.

  23. Nobody taught me a darned thing about personal financial planning when I was in high school. That is EPIC FAIL #1. As far as I know, they still don’t teach it.

    I was expected by my parents to go to an in-state, 4 year college…I was not allowed to stay home for 2 years and go to a community college. They had very little in the way of a college fund for me, so I was expected to take on loans and pay them back as they had done. The problem is, when they were in college, it much less expensive, relatively speaking. My parents made too much money for me to get aid, and federal loans pay for less than half a year at in In-State institution not to mention living expenses and books (a college kid can only work so much if you want to keep up in class)…so what choice did I have but to go to private lenders? I will have about $70,000 by the time I am done. That’s ridiculous. My fiance has over $100,000 in loans because his parents cosigned everything for him, and it turns out he never even had to pay for school to begin with! (Something I won’t think too much about because if I do I may hurt someone).

    So here we are in our mid 20s barely getting started with enough student loans to equal the cost of a house we won’t be able to buy for another 20 years. A small portion of it may have been wasteful spending, but in all honesty, most of our debt was just total ignorance of finances. It seems so hopeless sometimes, but we are getting good at handling money finally, and are willing to make sacrifices to get out from underneath this.

    We are using Dave Ramsey’s plan to pay off all our debts and if we ever have children, they are going to have a college fund. And learn personal finance.

    • Donna Freedman

      @Cwoonton: You’re right, we are failing our youths by not teaching PF along with/instead of PE.
      Further, we are failing them by saying stuff like “Work your way through, the way I did.” Um, costs have risen exponentially since then. We are either willfully ignoring that fact or pretending it doesn’t matter. Either attitude is unacceptable.
      I do think it’s possible to finish school without epic debt. But we don’t know that until it’s too late.
      I wish you luck and I commend you for taking hold now, before you get in any deeper.
      Thanks for reading, and for leaving a comment.

  24. I graduated in the 80’s with 20,000 in loans and I had a special needs child and had many hurdles to overcome anyways these loans were paid on the they were sold three times and over the years i have paid over 35,000 dollars on them but i still owe 90,000 because of fees i have an associate degree along with a bachelors. nothing fancy ! I have learned to live poor especially now since they want 1100.00 payments for the next thirty years I will be 70 when they get paid off since they are now with direct loans. I never declared bankrupcy when i could because i wanted to pay them off . I now regret it because i will grow old with this burden

    • Donna Freedman

      @Lisa: Unfortunately, most student loans can’t be discharged through bankruptcy. It is possible, though unlikely, to have them forgiven due to extraordinary circumstances. I wish you luck.


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