A Lifetime of Student Debt? Not Likely

May 22, 2009

One college graduate had smashed a ceramic piggy bank, while another had adorned a life-size human statue with nothing but a silver ball and chain. A third drew a picture of a woman in a red coat stumbling down a seemingly endless pathway. The objects were all part of an art show last month in which graduates expressed fear and frustration over their student-loan debt.

The show joins a number of increasingly high-pitched campaigns aimed at exposing what some consider a national crisis: Student-loan borrowing that is threatening the financial future of today's college students. In January a lawyer with $100,000 in education debt started a Facebook campaign urging the federal government to "free us of our obligations to repay our out-of-control student loan debt." Forbes magazine published an article that same month called "The Great College Hoax," which said that the decision to borrow to attend college often amounts to a "financial disaster." A month later, a book came out decrying college debt, with the title The Student Loan Scam: The Most Oppressive Debt in U.S. History and How We Can Fight Back (Beacon Press).

But is it really all that bad?

"There are some really poignant, painful stories," says Michael S. McPherson, an economist and president of the Spencer Foundation, which supports educational research. "But they aren't the typical American experience."

In fact, despite stories of a large number of students who face gargantuan debt, about a third of graduates leave college with no debt at all for their education. Of the 65 percent who face debt, the average they owe is around $20,000. That's just below the starting price of a 2009 Ford Escape.

"Most people borrow a reasonable amount of money, they pay it back, and they are better for having gone to college," says Mr. McPherson.

But for a vocal minority of borrowers, problems with student-loan debt are very real. About 8 percent of undergraduates borrow at least double the national average.

Why do some students borrow more than $40,000 for a bachelor's degree when average borrowing is only half that? The answer is almost never that they are from very low-income families and need that much money to get a four-year degree. Public four-year colleges charged an average of just $6,585 for in-state tuition and fees in 2008-9. The total cost, including textbooks, room and board, and other living expenses, averages $18,326 a year — and financial aid brings that figure down for many students.

More often, the problem among students who go heavily into debt is that they are determined to attend their dream college, no matter the cost.

"People don't pay attention to the debt," says Mark Kantrowitz, publisher of FinAid, a Web site about student aid. "They want to be able to pay for the school they have wanted to go to for as long as they can remember, and they are willing to do whatever it takes."

'Life Sentence'?

Students whom financial-aid experts call "overborrowers" capture most of the media's attention. "If you are a writer vying for a story on Page 1, which story do you want to write?" asks Mr. McPherson. "Is it going to be the careful story driven by the data, or is it going to be the headline that can scare people?"

He's talking about headlines like the one on a CNN report in 2006 that called student loans "A Life Sentence" and said: "Forget about getting married and buying a home. This generation is thinking about next month's payment."

But data on the average student-loan borrower tell a very different story. Figures compiled by the U.S. Education Department show that while roughly two-thirds of students graduated from four-year colleges in 2003-4 with some education debt, on average they borrowed $19,202. Those who attended public institutions graduated with an average debt of $17,277, and those from private colleges $21,957.

The data have been updated by the Project on Student Debt, a nonprofit research-and-policy organization, which found that for the Class of 2007, graduates' average debt was $18,482 at public colleges and $23,065 at private ones.

Jill McCusker graduated in 2007 from Stonehill College, a Roman Catholic institution in Massachusetts. Her $30,000 in education loans put her above the average, but she is managing her $300-a-month payments by living with her mother for now. She doesn't regret her decision to attend Stonehill or even to borrow $30,000 — although it has caused her to delay her plans to live in an apartment in Boston with a friend. "I really love the school and I felt it would look good on a résumé," says Ms. McCusker, who earns $39,000 a year working in an entry-level position for buyers at the headquarters of Talbots, a chain of women's clothing stores.

Ms. McCusker is among the silent majority of borrowers who are repaying their student loans without much complaint (see related articles). Her story stands in stark contrast to thousands of others on a new Facebook page that calls on the U.S. government to forgive all student loans. Robert Applebaum, who started the page, has been amazed to attract 188,766 friends and counting. With nearly $100,000 in education debt, though, he has a story far different from Ms. McCusker's. Mr. Applebaum incurred his loans during law school, for which the average graduate borrowed $70,933 in 2003-4.

Part of the confusion over the student-loan issue is that undergraduate debt is frequently conflated with graduate and professional-school debt — which is typically much, much higher. In 2003-4, for example, medical-school graduates borrowed an average of $113,661. Student-aid experts say the higher debt makes sense for people who earn degrees in law, business, and medicine because they are much more capable of landing high-paying jobs and paying off larger loans. (Mr. Applebaum has struggled because he went to an expensive law school but then took a low-paying job with the district attorney's office in Brooklyn, N.Y.)

Still, many economists say borrowing for any kind of higher education is generally a smart idea. That's partly because student loans typically carry low interest rates. "College is a very good investment, and most students take out too few loans, not too many," says Caroline M. Hoxby, a professor of economics at Stanford University.

Anthony P. Carnevale, director of Georgetown University's Center on Education and the Workforce, agrees. "From an economist's point of view, debt is the very best way to pay for education because you're shifting the cost forward until you'll be earning more money," he says. "You borrow cheap money. It's really a very good bargain."

Patrick M. Callan, president of the National Center for Public Policy and Higher Education, is not as sanguine about the value of borrowing. Still, "the only thing worse than borrowing," he says, "is not borrowing and not going to college at all."

Data on salaries back him up. According to the Census Bureau, the average college graduate earned $57,181 in 2007, while the average high-school graduate earned just $31,286. That means college graduates earned about 80 percent more that year than high-school graduates did. Over a lifetime, those extra earnings stack up. According to a 2002 report by the Census Bureau, a college graduate can expect to earn nearly $1-million more in lifetime earnings than a high-school graduate can.

"Alarmists have tried to change the public story on student-loan debt" by questioning whether borrowing for college is worth it, says Sandy Baum, a senior analyst at the College Board. But a student who graduates with $20,000 in debt should be able to make at least that amount in extra earnings in one to two years' time, she calculates, simply by having earned a college diploma.

Even in this economy, college graduates are much better off than high-school graduates. Yes, white-collar employees are losing their jobs. But the unemployment rate for people over 25 years old who hold at least a bachelor's degree is 4.4 percent, compared with 9.3 percent for people that age who hold only a high-school diploma, according to the Bureau of Labor Statistics.

Borrowing Risk

People concerned about student-loan debt say the problem is not that college isn't worth borrowing for, or even that today's average loan amount is too much.

What bothers advocacy groups like the Project on Student Debt is how many more students are borrowing now compared with a decade ago, how much more they are borrowing, and what that says about the affordability of a college education.

In 1993, the project has found, fewer than half of graduating seniors had loans, compared with 65 percent in 2003-4. Among those with loans, the average debt has more than doubled, from $9,250 in 1993 to $19,200 in 2003-4.

"It used to be that, 10 to 20 years ago, if you went to a four-year public institution, had a low to moderate income, and worked a reasonable amount part time in school, there was enough aid. and public institutions were better financed, so you could come out with no debt," says Lauren J. Asher, acting president of the group. "That same student now would have to borrow to get their education. A college degree is still a good investment, but the financial risk for the student has increased."

Indeed, Ms. Asher points out that more college graduates are carrying unmanageably high student-loan debts of at least $40,000. A study by the project found that in 1993, only about 1.3 percent of graduating seniors had borrowed the current equivalent of at least $40,000. By 2004 the proportion had risen to 7.7 percent.

High student-loan debt, says Ms. Asher, "can ruin someone for life." Many borrowers who find themselves in trouble use options under the federal loan program that allow them to postpone repayments on their loans for years. The problem is that because interest keeps racking up during such a deferment and after a default, the amount a borrower owes can soar.

That's what happened to Alan M. Collinge, founder of, an advocacy group. He took out $38,000 in loans, which included $15,000 for an undergraduate degree and $23,000 for a master's program in aerospace engineering. In 1999 he took a research position at the University of Southern California at $35,000 a year. By 2001, after he had spent $6,000 on an invention that didn't pan out and had a car accident that cost him $1,500, he realized that he could no longer pay his bills, including his $362-a-month education debt. He went to his boss, asked for a 30-percent pay raise, and quickly found himself out of a job and in default on his student loans. His student-loan debt now has reached $120,000.

In February, Mr. Collinge published The Student Loan Scam, which blames lenders for using harsh collection tactics and failing to work with distressed borrowers — some of whose stories he details in the book and on his Web site. He acknowledges that these borrowers fall at the margins of the student-loan experience, but argues, "The margins are important because those are real people."

It is not that difficult for borrowers to find themselves in trouble, Ms. Asher says. "People lose control of their finances, and sometimes they make choices you wish they hadn't made."

That could probably be said of Darla M. Horn, who organized the student-loan-debt art show last month in Long Island City, N.Y. Ms. Horn says she has taken responsibility for repaying her $80,000 in undergraduate student loans. Until recently she earned $100,000 a year and could afford her repayments of $650 a month. (She is between jobs now and recently put her loans in forbearance while she worked on the art show, which she said was meant "to boost awareness of the growing burden of student-loan debt in an ever-tightening, ever-globalizing economy.") But she says she is not sure anyone should lend college students so much money, even if they are willing to take it.

Ms. Horn didn't have to borrow all that she did to earn a four-year degree, but she wanted to get far away from the small Texas town on the Louisiana border where she grew up. So she enrolled at the State University of New York College at Purchase and borrowed about $25,000 a year for the final three years to pay her out-of-state tuition. "There really wasn't a whole lot of thinking behind it," says Ms. Horn, whose parents hadn't saved much for her higher education. "I could have gone to a public school in Texas for less, but I wanted to go to New York and start a new life."

When she graduated, she realized that she didn't even know how much money she had borrowed. "I can humbly say that I was completely financially illiterate," she says. "I was just signing the documents and faxing them back."

Experiences like Ms. Horn's aren't uncommon, say higher-education experts. Indeed, heavy borrowers are not necessarily poor students who would have been forced to forgo higher education if they hadn't received extravagant sums. Rather, some students enroll in high-priced for-profit programs only to learn later that their certificates or degrees are not as useful on the job market as they had expected. Students who attend four-year programs at for-profit institutions borrow much more on average — about $28,138 each in 2003-4 — than students at nonprofit institutions do. Others borrow large amounts to attend pricey traditional four-year colleges but have no idea what kind of jobs they might land upon graduation and so have no way to judge whether they will be able to repay their loans.

'Intimidated by the Complexity'

Meanwhile, it is no one's job to talk with students about whether the amounts they are borrowing line up with their professional aspirations or even their immediate job prospects.

"College academic advisers are intimidated by the complexity of financial aid," says Jacqueline E. King, assistant vice president for policy analysis at the American Council on Education. Financial-aid offices say to students, "You make the academic decisions, and we will try to get you the money to pay for it," she says. Sitting down with each student to judge the wisdom of the amount he or she has borrowed would be impossible, particularly at large universities, she says.

Donald A. Saleh, vice president for enrollment management at Syracuse University, says it does try to advise students. According to a recent analysis by U.S. News & World Report, 63 percent of students in Syracuse's Class of 2007 took out education loans, borrowing an average of $27,152. That landed the university on the magazine's list of universities with the heaviest student borrowing. (U.S. News uses the mean when calculating average debt, while Syracuse uses the median, which is only $22,600 on average per student.)

"We can advise students about what we think is right, and we will caution students," says Mr. Saleh. "But if they have the legal ability to borrow the money, we can't prevent that from happening."

New York University — where student borrowers graduated with an average of $33,637 in debt in 2007 — has begun contacting high-school seniors it has admitted to make sure they understand the debt load they could incur if they enroll (The Chronicle, May 1).

Deanne Loonin, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, says students shouldn't rely on their colleges to warn them about overborrowing. "It's too great a conflict of interest for schools that are essentially selling a product to be expected to be the ones who are going to be conservative financial counselors," she says.

Besides, students are not always open to such advice. "Making the college choice is a very emotional decision," says Allesandra Lanza, a spokeswoman for American Student Assistance, a loan-guarantee agency in Boston. "It is not just the education you are receiving, but this whole idea of an experience that will change your life," she says. That makes it difficult for people to step back and ask, "Is this the most valuable use of your dollars?"

Sometimes the hopes and dreams of an entire family can get caught up in a decision about where to attend college. That's particularly the case at religious institutions, says John Maguire, who is chairman of Maguire Associates, a higher-education consulting firm in Bedford, Mass. "For families who believe deeply in the mission of a Christian college, this is a school they'll spend any amount of money on," he says. "When people are saying, 'This will make a huge difference in my kid's life,' they are not talking about income. They are talking about whether their kid is going to go to church on Sundays, whether they will raise their own kids in the church, or even whether they will get into heaven."

Robert A. Sevier, senior vice president at Stamats Inc., a higher-education marketing firm in Cedar Rapids, Iowa, doesn't have a lot of sympathy for college graduates who find they cannot repay their education loans. Overborrowing for college isn't much different than overborrowing for a home, he says. "People live outside their means."

But that doesn't describe most college graduates, he adds. "In spite of all the hysterical extremes, there are a lot of people in the middle who are making things work. They are graduating from college with $20,000 in debt, they are going to graduate school, getting jobs, and buying homes within their means."