Students finish college anchored to loan debt

CHICAGO — A college education used to be a ticket to a secure future. Now, a generation of students and graduates is walking off campus with a collective $1 trillion in student loan debt and troubling career prospects. The daunting combination is forcing them to rethink their futures, postponing weddings, home purchases and vacations to make hefty monthly payments on loans that will follow them into middle age.

It's a financial and emotional strain their parents didn't have, or at least not to the same degree. Just two decades ago, fewer than half of undergraduates finished school with debt, and the average was less than $10,000. This spring, two-thirds of graduates are expected to have debt, owing an average of $29,000. In fact, student loan debt now exceeds the country's credit card debt.

Addressing the outcry heard from Occupy Wall Street protests to kitchen tables in the Chicago area, President Obama last week sped up plans to help graduates dig out. Some borrowers will be able to lower their maximum required payments starting next year, with balances forgiven after 20 years. Borrowers will also have the chance to consolidate loans at a lower interest rate.

But even those proposals may mean only modest help, and won't help those who've already defaulted.

And future students could face even heavier financial burdens. The cost of going to college has risen faster than inflation, home prices and even health care costs. Tuition at the average public university is up 8.3 percent this fall, and 123 colleges now charge $50,000 or more for tuition, fees, and room and board, according to data released last week.

While a college degree will lead to significantly higher earnings over a lifetime, the unemployment rate for recent graduates is more than 10 percent.

"What we know is it is impacting so many people," said John Pelletier, director of the Center for Financial Literacy at Champlain College in Vermont. "I think many of them have been surprised, as have been their parents. There are many of them like the folks who may have gotten into mortgages they regret and don't understand."

An ongoing bill

That's true for Steven Kent, who graduated from Loyola University Chicago in 2009 with a journalism degree and $49,000 in federal student loan debt. His payment notices asked for at least $650 a month, he said, more than his $533 rent.

Kent, 27, is working at a Starbucks where he earns about $1,500 in salary and tips a month. He hasn't paid back a penny of his loans.

"I didn't have an expectation that it would be this ongoing bill I would carry forever. I thought it would be like a utility bill, not another rent payment," said Kent, whose deferment ends in April. "It is like having a ticking time bomb around your neck."

Laura Perna, an education professor at the University of Pennsylvania, said that while most students borrow reasonable amounts of money, an "important share of the population" has excessive amounts of debt.

"This is a relatively new phenomenon," Perna said. "For those students, it is influencing many dimensions of their post-undergraduate life."

In 2005, when the advocacy group Project on Student Debt began, there was so little attention to the issue that founders couldn't decide on an organization name. "There wasn't the term 'student debt,' " said Lauren Asher, president of the Institute for College Access and Success, the home of the debt project. "There was so little awareness of how much our higher education system had changed and how heavily it had come to rely on student debt."

"College is still the best investment you can make in the future and our country's future," Asher said. "But like any investment, the returns are not guaranteed."

A 'scary thought'

Nija Fountano is in college, but she's already, little by little, paying off her student loans.

About $60 a month goes toward a loan payment, money earned from the two jobs she has in addition to going to school full time at the University of Illinois at Chicago. She expects to graduate in the spring with $30,000 in private and federal loan debt.

"That is becoming an increasingly scary thought because I don't have any savings," Fountano said. "I don't know if I would say it weighs on me daily, but having such a tight budget and living paycheck to paycheck is a stress on its own."

An urban-planning student, Fountano, 21, is postponing graduate school plans until she feels more financially secure. She works at Whole Foods and as a gymnastics instructor, and she hopes to get a job related to her field of study after graduating.

"Was it worth it? It is definitely worth it, but it is really difficult, and sometimes when I think about it, I wonder if maybe I could have done it differently," she said.

No buying a house

Like many young married couples, Jessica and Ian Riley share everything they have, including $30,000 of student loan debt.

She still owes about $21,000 on a loan she took out to pay for the Western Michigan University bachelor's degree she received in 2006. The debt eats $400 from her monthly pay.

He owes $9,000 for a semester of an online course he took from Ashford University. He pays $627 a month.

"It definitely changes, like, your whole mind frame of things that you do, and not getting any more credit cards, or not accruing any more debt," Jessica Riley said. "We have rented for 11 years. I would love to own a home, but honestly I don't see that happening."

The Rileys, both 29, say they wish the federal government could do something to lower interest rates or offer more flexible repayment plans.

"Just give graduates some kind of solution," she said. "We want to pay our debt, but it needs to be a reasonable manner where we can eat and breathe and be happy."

Working two jobs

Natalie Quist, 28, doesn't look at the statements on her student loans anymore. They make her queasy.

She's well aware that she owes $13,000 on a federal loan and $19,000 more to a private lender.

The debt, which requires $500 in payments each month, forced her to take a second job, never mind that neither it nor her first job is related to psychology or criminal justice, her college majors.

"I wouldn't say my degree is useless, but it doesn't get you as far as you thought it would," said Quist, who graduated from Loyola University Chicago in 2006.

Because of the debt, Quist doesn't have a car. She'd also like to go to graduate school, but she doesn't dare add to her loan balance.

Still, Quist considers herself lucky in some ways. She would be worse off, she said, had she not gotten a $36,000 academic scholarship to reduce her tuition bill. And she knows the price of higher education has only risen since she got her diploma.

"It's probably worse for kids entering college right now," Quist said. "I can't imagine."