STUDENTS LEAVE COLLEGE OWING ENORMOUS AMOUNTS OF MONEY
MATTHAI CHAKKO KURUVILA, Mercury News
It's not just a University of California-Berkeley law degree that Claudia Medina will walk away with this spring. She'll also take home debts: $75,000 in student loans, and another $4,000 from a bar exam prep course. So, to save money, Medina, will return to live in the one-bedroom, Los Angeles apartment she'll share with her mother, uncle and cousin.
The debt ''is definitely going to have an impact on the personal choices I make,'' said Medina, 27, who plans to fulfill a life's dream of doing legal advocacy work in low-income and disenfranchised communities. Medina is emblematic of a generation that's leaving school and beginning careers with unprecedented debt loads. The amount of debt and the number of students taking on educational loans have risen sharply. Some experts say the heavy debt -- and repayment obligation -- is limiting the career choices young people are making, for instance, keeping them out of jobs at risky start-ups.
Tuition has continued to skyrocket, and recent congressional actions to restructure interest rates on student loans have helped double interest rates on the most common federal loans in just a year's time. In addition, students facing rising tuition costs and caps on federally subsidized loans increasingly have been forced to turn to private loans, which can be more expensive, depending on the student's credit history. Roughly two-thirds of recent college graduates now carry loans and their average debt has increased by 50 percent over the last 10 years, even when accounting for inflation, according to the Project on Student Debt. ''We've seen a sea change, a real shift over the past generation from a system where less than half of students left with debt and now two-thirds leave with debt,'' said Robert Shireman, director of the student debt project. ''Now, it's become the norm to leave with debt -- and often with a lot of debt.''
That ballooning burden, combined with credit card debt, plays an ongoing role in the lives of graduates, experts and students say. The monthly loan payments drain funds that could be spent on homes or planning for families.
It's also affecting the types of work recent graduates are willing to take, said Patti Wilson, a Palo Alto-based career counselor who has worked with students for the past two decades. ''They're reluctant to make career choices that would be to their benefit because of the problem they have paying student loans. They won't jump to a start-up. They won't jump to an entrepreneurial opportunity,'' she said.
The growing debt load of students is partly attributable to decisions made by Congress. The 4.75 percent variable rate on federally subsidized Stafford Loans will jump to 6.8 percent on July 1. That's more than double the 3.37 percent it was in June 2005. Interest rates on loans taken out by parents are also set to jump from 6.1 percent to 8.5 percent. Interest rates on Stafford loans will hit a five-year high, above the historical average, according to Mark Kantrowitz, publisher of online student aid resource Finaid.org. ''It's definitely the dark ages for federal support for higher education,'' said Kantrowitz.
There are some options. Kantrowitz advises students and parents to consolidate their loans at fixed rates at least a month before July 1. There are also those who'll do what they can to avoid student debt. Kenny Alvarado, 22, works 20 hours a week for a Hayward moving company so that he won't have any loan debt. The fourth-year advertising major attends San Jose State University roughly half-time, meaning that he won't be able to graduate this spring.
Working also serves as a Catch-22. Alvarado's $12.50 hourly income made him ineligible for financial aid -- even though he says a quarter of it goes to helping his parents, who operate a lunch truck. Federal income rules are strict and can't adjust to subtleties such as working students who help support their families, said Colleen Brown, San Jose State's director of financial aid and scholarships. Beyond the problems Alvarado faces, many middle-class families find themselves in a bind because Bay Area salaries put them into a higher bracket for financial aid. ''Living in this area, we find that students get squished in that middle income bracket,'' Brown said. Medina, the UC-Berkeley law student who plans to do legal work for the poor, knows that she could earn more working in a law firm or a private sector company. But she didn't go to law school to practice that kind of law. ''My mom is proud of me because I'm going to help my community,'' said Medina.
Nearly two-thirds of students attending four-year colleges and universities have student loan debt. In 1993, less than one-half of four-year graduates had student loans.
The student loan debt levels of students graduating from public universities more than doubled from $8,000 to $17,250 over the past 10 years.
More than 40 percent of college graduates who don't pursue graduate school blame student loan debt.
In the past five years, tuition and fees at public universities have risen 57 percent.
Borrowers who do not complete their degrees are 10 times more likely to default on their loans, and twice as likely to be unemployed as borrowers who complete their degrees.
One-fourth of graduating borrowers
in 2004 carried more than $25,000 in student loan debt (not including
loans
taken
out by parents).
Source: The Project on Student Debt
Copyright (c) 2006 San Jose Mercury News