All Articles Tagged "student debt"
Jobs are scarce and student loan debt is putting many college grads in a financial bind. As a result, many people are questioning whether a college education is worth the time and expense that so many people are investing in it.
Earlier this week, we offered some basic advice for how to get the most out of the financial aid offered by the federal government. In that story, we included this important comment from BusinessWeek: “Many students are incurring heavy debts for an education (ethnomusicology, theater arts) that just isn’t worth it from a strictly financial viewpoint.”
This topic is tackled further in this week’s issue of Newsweek. To be clear, the article says that a college education is very much a valuable investment.
“College graduates now make 80 percent more than people who have only a high-school diploma, and though there are no precise estimates, the wage premium for an elite school seems to be even higher,” the article reads. Like the BusinessWeek story, the Newsweek article makes distinctions between majors and how exactly students spend their four years in school. (The article frowns upon beer pong.)
But more than that, the article takes a look at the rising cost of school and how that is impacting the ability to pay back those student loans. Schools are now investing in nicer dorms, more faculty and administrators, and other perks and features that are meant to attract students. But those bells and whistles drive up the cost of operating a school. That cost is passed down, of course, to the student. If the price of school goes up, the amount one has to borrow goes up, which means you’re on the hook for more after graduation.
“Just as homeowners took out equity loans to buy themselves spa bathrooms and chef’s kitchens and told themselves that they were really building value with every borrowed dollar, today’s college students can buy themselves a four-year vacation in an increasingly well-upholstered resort, and everyone congratulates them for investing in themselves,” the article says.
More than that, many students are going to a particular school because of how it looks on their resume.
“That debate matters a lot, because while the value of an education can be very high, the value of a credential is strictly limited,” the story continues.
In other words, give some deep thought to what you’re going to school for. Ultimately, it should be for the education you’re going to get. And that education comes not just from the institution, but from the effort that the student puts into the work.
Start saving your money early, and take steps to keep college costs at a manageable level. That could mean going to a two-year college then transferring to a four-year institution. Or going to a state school instead of a private one. Or one closer to home to save on housing expenses.
The point is, know what you want to get from your education and take steps toward that goal. You’ll be rewarded with a salary that will allow you to pay any debts you might have incurred.
College costs have gotten so high, that even wealthy families are forced to find ways to pinch and save money. MSNBC reports that a new report from student loan organization Sallie Mae shows that families earning over $100,000 a year are realizing that keeping their young adult children at home through college saves tons of money. The report states that 47 percent of students whose families earn over $100,000 are living at home this year compared with 37 percent in 2011. Meanwhile, 53 percent of students with family income of $35,000 to $100,000 are living at home.
This of course means many students must sacrifice school choices for location. Almost 70 percent of families were forced to make tough decisions regarding school choice because of cost, up from 64 percent last year.
“I lived close enough to school that it didn’t really make sense to blow so much money away to live in less-than-ideal living situations,” said Chrissy Callahan, a 23-year-old 2010 graduate from Brandeis University in Massachusetts who works in Web journalism. “My sister had also commuted to college and enjoyed it, so it was a pretty easy decision.”
Callahan estimates that her family saved about $45,000 during her four years in college. She was able to graduate debt free and in much better financial standing than many of her classmates.
“I definitely appreciate the discipline that commuting gave me,” she said to MSNBC. “It forced me to plan out my days in advance and prepped me for the real world.”
While families may be saving on housing, they’re also borrowing more. The typical family borrows 18 percent of the total cost with student loans and nine percent in parent loans. This is up from the 15 percent of student loans and seven percent parent loans of last year.
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Everybody knows the perils of credit card scams that try to lure young college students into debt on campus. But what you might not know is that many colleges are also in on the scams. According to the Associated Press, there are as many as 900 colleges opting to use credit card companies to handle student financial aid money. These payment cards come with heavy fees that benefit both the college and the bank sometimes through secretive deals. A report obtained by the AP reveals that these financial gains are sometime even in violation of federal law.
“They sold it as a faster, cheaper way for the college to get students their money,” Parker-Milligan, the student body president at Lane Community College in Eugene, Oregon said to MSNBC. “It may be cheaper for the college, but it’s not cheaper for the students.”
Higher One is one of those companies accused of baiting students into debt. The company has agreements with 520 campuses that enroll over 5.3 million students, that’s one-fifth of the entire enrolled student population. The report also shows that combined, Wells Fargo and US Bank have deals with schools that enroll 3.7 million students. Higher One charges fees $50 for an account that is overdrawn more than 45 days, $10 per month if the account remains inactive for six months, $29038 for overdrawing with a recurring bill payment and 50 cents each time a PIN is used instead of a signature at a store.
In response, the company’s Chief Operating Officer Miles Lasate says that Higher One is, “committed to providing good value accounts that are designed for college students.”
Despite the company’s claim of good intentions, these fees are adding up to the mountain of debt many students already face from loans. According to the Consumer Financial Protection Bureau, U.S. student debt has reached $1 trillion.
Would forgiving student loans help economic recovery? Last week, I was hanging out virtually on my Facebook wall, when I noticed a number of requests to sign a petition to support House Resolution 365, a bill that seeks to provide student loan debt forgiveness as a means of economic stimulus.
U.S. Congressman, Hansen Clarke (D-MI) is spearheading the movement and has said that he has sponsored the bill based off the simple belief that if the loans are forgiven, then the money that would normally go to pay off those loans will be dropped back into the economy, stimulating the need for more jobs. So far over a quarter of a million people have signed the online petition, which is circulating on SignOn.org and other progressive sites.
Like many college graduates, I am overburdened by student loan debt. Since graduating in 2000, I’ve been grabbling with how to pay back the over $30k, on a community organizer’s salary no less, while also maintaining a standard of living, which will allow me to have food, shelter and other necessities. And yet I realize that my struggles with my loans, which had been reconsolidated, deferred and placed in forbearance more times than I can count, pales in comparison to the debt that many other college alumni, who have graduated into a stale market, have been saddled with.
Part of me imagines that many of the kids protesting outside of Wall Street do so out of the frustration of being over educated and under-employed/unemployed. And who could blame them? This past year, total student loan debt finally surpassed total credit card debt in America, and is on track to exceed one trillion dollars within the next year. The U.S. Department of Education’s own statistics suggest that the default rate has risen to 8.8 percent, up from 7.0 percent in 2008. Today’s graduates watched as companies like Goldman Sachs and Well Fargo received bailouts, and then turned around to make record profits, while they flounder in the abyss of unemployment, underemployment and debt.
Although the federal government already has loan forgiveness programs, the requirements to even qualify for this program are restricted to certain fields; it would probably be easier to win the lottery than to actually have one’s loans forgiven. With American’s mounting debt and economist warnings of a student loan bubble coming anytime soon, maybe we should start thinking very seriously about bailing out the country’s educated class.
The New York Times recently highlighted a report from Complete College America, a Melinda Bill Gates Foundation funded non-profit group, which has produced a comprehensive report of today’s college student, their challenges and the reasons why they are not completing their degrees and certificates. According to the report, about 4 of every 10 public college students attend part time — and no more than a quarter of part-time students ever graduate. One of the reasons, as attributed by the reports, is the large number of students mired in noncredit remedial classes, which includes half of all students studying for an associate degree, and one in five of those seeking a bachelor’s degrees, many of them never move on to credit-bearing courses. But the most important factor is that the rate of inflation for college tuition has not matched salaries of those, who are now entering the workforce. According to the National Center for Education Statistics (NCES), the cost of a public four-year degree has nearly doubled between 1964 and 2009 when adjusted for inflation.
Justin Wolfers, of Freakonomics, offered several reasons for why he believed that forgiving student loan debt will do little to stimulate the economy. For example, he argues that college grads typically have higher incomes than non-degreed workers and if the government eliminates their debts, the educated class would be more inclined to save their money as opposed to spending it within the market. However, the flaw of Wolfers’ argument is that even with a wage step back for college graduates, a college graduate is still expected to make double that of a high school graduate, who is slowly being pushed out the employment market.
Likewise, even if the very short-term plan for a person is to save their extra money, generally the point of saving money is to someday have enough of it to spend it on such big ticket items like houses and cars. This spending would obviously add a boost to the economy while creating a higher demand for jobs in both the auto industry and housing construction sectors.
It is a cruel reality for those who felt that they did everything “right” and are still not able to maintain a decent standard of living. Truthfully, even as I struggle monthly to keep up with my loan repayment, I don’t know for sure if student loan forgiveness is just a temporary fix to a long-term problem. Not saying that if it was offered, I wouldn’t take it. Right now, my 1995 Toyota Camry, with its 132 thousand miles, is probably on its way to the great junkyard in the sky. And without a little financial boost, the only other option I see for a replacement for my sole source of transportation is if Oprah suddenly shows up to my house one day and says, “You are getting a brand new car.” Fingers crossed. But besides my purely selfish desires, even if our debt is forgiven what happens to the next generation of college grads, who find themselves in similar situations? Do we forgive those loans too? Not that I’m opposed that idea but if so, why not focus on the longer-lasting solutions to making education accessible and less financially burdensome for all?
Charing Ball is the author of the blog People, Places & Things.
(Gannett News Service) — The number of people who aren’t paying back their student loans is on the rise, and the government is increasingly threatening to sue them for the money. The amount of loan defaults that the Education Department has referred to Justice Department lawyers for possible legal action nearly doubled from 2009 to last year: There were 2,596 in 2009, and then 5,393 last year, Education Department figures show.
(New York Times) — For each student who defaults on a loan, at least two more fall behind in payments on their student debt, a new study has found. The Institute for Higher Education Policy, a nonprofit organization, said in a report that two out of five student loan borrowers were delinquent at some point in the first five years after they started repaying their loans. Almost a quarter of the borrowers used an option to postpone payments to avoid delinquency. The institute said the goal of its study was to develop a fuller picture of the debt burden that students face by compiling data on students who have trouble repaying their loans, but do not default.
by Candi Sparks
On June 15, the Department of Education responded to complaints from consumer advocacy groups by proposing regulations which would force for-profit schools (like DeVry) to change their policies, or lose student funding. The regulations are aimed at getting for-profit schools to accurately report two statistics to student candidates, namely, the school’s graduation rates and post graduation job placement rates, before accepting a student‘s enrollment. In addition, a school could lose student funding if more than 45% of graduating students fail to pay off the principal on their federal school loans.
A group of more than 1,400 (or 95%) of for-profit schools known as the Career College Association, challenged the government’s position. Jonathan Guryan, an economist at Northwestern University said on behalf of the Association that the regulation would have unintended consequences that disproportionately affect poor, black and Hispanic students, who attend for-profits at higher rates. Schools may be tempted to turn away students with high debt, he said. “I’m concerned it would create an incentive for schools to discriminate.”
The for-profit schools rely on higher tuition to cover operating costs and turn a profit. Accordingly, students of for-profit schools typically incur higher student debt. Their students receive about 24 percent of Stafford federal loans to attend for-profit schools.
Defaults on federal student loans put taxpayers on the hook for 97 to 100 percent of the losses, depending on whether the default is on a direct or guaranteed loan. Hypothetically if a student defaulted on a $30,000 loan without making a single payment, taxpayers would be responsible for $29,100 to all of it. Although statistics show that many borrowers pay down a portion of their loan before defaulting, the government collects the remainder.
According to the Department of Education, these regulations have been put into place to protect the low-income and minority students who are often targeted by for-profit schools and either drop out, default on loans and/or cannot find jobs in their area of study at the for-profit school. Defaulting on a loan would harm a student’s ability to find housing, employment and gain further access to credit. Many students turn to 2-year programs at community college to avoid the high cost of the for-profit school while continuing their education. The cost of a for-proft may not ultimately be worth the price of admission.
The final rules will be published by November 1, 2010 before they take effect next July.
Candi Sparks is the author of the “Can I Have Some Money?” books series.