National student loan debt is nearing the $1 trillion mark. The Federal Reserve Bank of New York estimates that 37 million Americans have student loan debt, which totals about $870 billion, a figure that surpassed national credit card debt in 2011. With most college grads leaving school with a diploma and an average of $25,000 in debt, will the student loan bubble burst?
Charles Kelley, executive director of the Rhode Island Student Loan Authority, doesn’t think so.
Kelley isn’t worried that student loans will mirror the trajectory of the housing market in the past 10 years. The distinction between the two, he said, is that federal student loans are not dischargeable through bankruptcy. However, students can still default on student loans, which they must pay even if they don’t finish their schooling.
Kelley advises students to see their schooling through, especially if they’ve taken out a loan. He said he often sees students who drop out of college unable to pay their loans with a salary unaided by a degree. Conversely, Kelley sees college grads that are unable to attain those high-paying positions.
“The unemployment rate of college grads is half that of the general public,” he said. “It’s unknown if they’ll get a job.”
But Kelley thinks the bigger issue is the gap between the average starting income and the cost of the degree. While becoming a plastic surgeon will surely pay off average student debt, taking another path, like teaching, will be harder to manage financially. So what should students do if they don’t want to perform plastic surgery?
“What they should do is try not to borrow more than is warranted,” he said.
Stacy Crooks, director of the College Planning Center of Rhode Island, said she encourages students to go to lower-cost, public institutions before considering the pricier private schools.
“If it’s going to take 25 years to pay off, is it worth it to you?” she said.
She said the starting salary of most careers out there – assuming there’s a job – today don’t cover the cost of student loans. She also said she sees an increased demand for advanced degrees, which is another reason for encouraging a cheaper school for undergrads. Crooks cited the example of the psychology major, an industry that requires students to get an advanced degree. She encourages psychology students to go to an affordable school that offers the most financial aid, not a top-shelf institution, for their undergrad.
“If you can’t afford to pay much, look at CCRI or RIC to get your core curriculum classes,” he said. “It dramatically decreases the amount of money you have to borrow.”
Crooks said Stafford and Perkins loans are the only types students can take out in their own names. Kelley said the typical college freshman is allowed to borrow only $5,500. With their parents as co-borrowers, students can borrow up to $27,000 in a Stafford loan under their own name. Crooks said most students borrow the maximum amount.
National stats show the average student loan debt for graduates is between $25,000 and $26,000, and the majority of college students graduate with loans to pay off. But Kelley said that data doesn’t paint the full picture, since most college freshman can only get minimal loans as under-age dependents and parents often take on some of the burden. The data collected only represents the students’ debt, not the debt under the parents’ names.
“It’s just a portion,” said Kelley of the $25,000 figure.
So why is student debt so high? The cost of college has been consistently on the rise since the 1980s. According to the U.S. Department of Education, tuition in 1980 was on average, roughly $3,500 a year for a four-year institution; slightly less for a public school, and slightly more for a private institution. As of 2010, the average public college tuition was just over $15,000 a year – for private schools it was just under $33,000.
Kelley avoided comment on the rising cost of college tuition. Although the cost of college has risen dramatically, Kelley said there is a notion among high school students that they must attend college in order to be successful – a notion, he admits, isn’t entirely true.
“I won’t beat around the bush, there are other post-high school education programs,” he said. Kelley said pursuing a trade could be a lucrative move for students who decide higher education is not for them. Still, he said students should aspire to go to college, so they don’t close the door of opportunity to post-secondary education by not succeeding in high school.
Then there’s unorthodox moves being made by billionaires like Peter Thiel, who is paying students $100,000 to drop out of college to become entrepreneurs. Those who oppose Thiel’s ideology call him and his program “anti-education.”
As for the idea of taking a gap-year between high school and college to mull things over, Kelley said that is not for all students.
“I think that’s a student-by-student decision,” he said. “One big concern is that [students] get out into the workforce and it becomes too easy not to go back to school.”
Locally, State Representative Jim Langevin is working to ensure Congress does not increase the interest rates on Stafford loans from 3.4 to 6.8 percent, a jump that could tack $4,000 on to some students’ debt. The increased rate would affect roughly 36,000 Rhode Islanders with loans totaling $150 million. The lower loan rate was established under the 2007 College Cost Reduction and Access Act. Nationally, President Barack Obama and candidate Mitt Romney have both spoken in support of renewing the act, which is set to expire this summer.
2 students ready to borrow for a bighter future
Graduation season is upon us and some local seniors are preparing to take out loans and matriculate to school come the end of the summer.
Kayla Lopes, a senior at Toll Gate High School, plans to attend Bryant University in the fall. She said she’ll most likely be helping to pay for her student loans, though she’s not sure what types of loans they’ll be or how much they’ll cost.
But Lopes isn’t worried about repaying them.
“I know I’m going to be getting an internship out of [Bryant],” she said, a step she hopes will help her earn enough money to pay off her loans. In the meantime, she’ll be living at home to help save money.
Colin Stamps, a classmate of Lopes at Toll Gate, was awarded $1,000 from Wave Credit Union to help offset his college expenses. Stamps plans to attend URI in the fall to study kinesiology, or the study of the movement of the human body. He hopes to become a physical therapist.
Stamps plans on taking out college loans but, like Lopes, hasn’t discussed the specifics of which types or the amounts with his parents. Stamps said he would be paying for the bulk of his college education on his own.
With a job at Walgreen’s, Stamps said he is already saving up money. He plans to continue to work at Walgreen’s while attending URI, and is also looking to secure an on-campus job in the fall.
Stamps and Lopes both agreed that college tuition is too expensive.
“It’s way too high,” said Lopes, who knows a lot of college grads are leaving school with debt.
Stamps said it’s unfair for college grads to have such a huge burden hanging over their heads in a poor economy.
So, is he nervous about graduating college with a lot of debt?
“Oh definitely,” he said.