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Increasing college costs, stagnant federal and state grant programs and rising student loan interest rates are driving more and more American students deeper into debt. Almost two-thirds of students at four-year colleges and universities have borrowed to pay college bills, and average debt for graduating seniors is approaching $20,000. Some will owe $50,000 or more by the time they graduate. In this special six-page section, National CrossTalk explores these issues, and presents the stories of four students.

By William Trombley
Senior Editor

For millions of college students who depend on federal loans to pay college bills, the recent news from Washington has been unsettling.

Searching for ways to reduce the huge federal budget deficit, Congress has targeted the student loan programs, which now account for about half of all student financial aid. Of $39 billion in anticipated deficit reduction over the next five years, almost $12 billion—by far the largest part—will come from the loan programs, leading to these changes:

  • On July 1, interest rates on the popular Stafford loans will increase from a variable rate that has dipped as low as 4.7 percent this year, to a fixed rate of 6.8 percent.

  • Parent Loans for Undergraduate Students (PLUS) loans, which have been made at variable rates recently averaging 6.1 percent, now will carry a fixed rate of 8.5 percent.

  • Limits on Stafford loans will be increased (from $2,625 to $3,500 for the first year; $3,500 to $4,500 for the second; $5,500 remains the limit for third- and fourth-year loans), but the total amount that a student can borrow remains capped at $23,000. After that, many students are turning to private loans, generally at higher interest rates.

  • For the fifth year in a row, federal Pell grants for lower-income students will be funded at the same level—$4,050.

    Two-thirds of graduating seniors now borrow to pay the bills, while in 1993 less than half did so. The average debt burden for these graduates is $19,200, more than twice what it was a decade ago, according to The Project on Student Debt, a non-profit advocacy group.

    The combination of higher interest rates, stagnant Pell grants and escalating college costs will increase the student debt burden substantially, according to many observers who follow student financial aid developments.

    "It's very clear that in the short run—that is, over the next five years—students will bear the burden of the (budget) cuts," said Sam Kipp, president of EdFund, the student loan services auxiliary of the California Student Aid Commission. "The long term is much less clear. It depends on how high the variable rate would have gone without this legislation."

    "I agree this makes it tougher on students," said Brett E. Lief, president of the National Council of Higher Education Loan Programs, which represents guarantee agencies and non-profit lenders. "I also think this will scare more low-income students away from higher education."

    Said Luke Swarthout, a higher education associate at the Public Interest Research Group, "The bottom line is that Congress took $12 billion from the loan programs to pay for other things at the worst possible time. Tuitions are rising fast, the nation needs more college-trained people, and there is increasing evidence that one needs a college degree to lead a middle-class life."

    Initially, changes in the loan programs were being studied as part of reauthorizing the Higher Education Act of 1965, a leisurely process that began three years ago. However, as the federal deficit soared, "most plans to reform the student loan programs were swept aside, and the loan programs became a deficit reduction target," said Becky Timmons, director of government relations for the American Council on Education. "We were on the students' side on this one—why not reduce lenders' subsidy further, instead of hiking student interest rates?"

    The legislation that emerged, and that is now law—the Deficit Reduction Act of 2005—is not entirely unfavorable to students. In addition to increasing Stafford loan limits, Congress voted to phase out the three percent "origination fee" that has been added to federal loans. Also, graduate students now are eligible for the PLUS loans that previously were available only to parents of undergraduates. And two new grant programs were established for lower-income students who are proficient in math and science.

    Banks and other for-profit lenders also came in for some Congressional trims. "We are definitely worse off" because of the legislation, said John Dean (not the John Dean), special counsel for student loan programs at the Consumer Bankers Association.

    Dean said elimination of the origination fee will reduce lender revenue (although many banks already were offering "no-fee" loans). Overpayments on student loans, which have been pocketed by lenders, will go to the federal government in the future. The Congressional Budget Office estimates that these overpayments will amount to $13 billion over the next five years.

    The rate at which the government repays lenders on defaulted loans will drop slightly—from 98 percent to 97 percent, but that lost revenue is likely to be recovered many times over by the increased interest rates on federal loans, many experts believe. The national default rate is currently 4.5 percent, based on data from 2003, the most recent year available.

    "The legislation's impact will be very light on lenders," said Mark Kantrowitz, publisher of, a website about student aid. "You can tell what they think by what they're telling their investors, and what they're telling them is that the impact won't be very great."

    The legislation is kinder to lenders than it is to students partly due to the efforts of Ohio Republican John Boehner, who steered the bill through Congress in his role as chairman of the House Education and the Workforce Committee. Boehner since has risen to be majority leader of the House of Representatives.

    "The lenders have a very good friend in John Boehner," Mark Kantrowitz said.

    At the annual meeting of the Consumer Bankers Association last December, Boehner told the assembled lenders, "Know that I have all of you in my two trusted hands," The Chronicle of Higher Education reported.

    A Chronicle investigation found that Boehner's political action committee received $172,000 in contributions from lenders and loan consolidators during the 2003-04 election cycle. More than $100,000 of that came from Sallie Mae, which once was a government-sponsored enterprise but now is a highly successful private, for-profit company that both makes and guarantees student loans and also owns a loan default collection agency, among many other enterprises.

    With a sales force of 400 and a powerful Washington lobby, Sallie Mae dominates the student loan industry. Its net income increased from $465 million in 2000 to $1.9 billion four years later, according to a Fortune magazine article last December. Al Lord, former Sallie Mae CEO, was paid $225 million in salary and stock options from 1999 to 2004, the magazine also reported.

    Sallie Mae now is attempting to buy the loan portfolios of some non-profit state agencies, which critics say will result in poorer service and higher rates for students. As it is, "students are entering the economy a slave to Sallie Mae," Joshua Chaisson, a student at the University of Southern Maine, recently complained at a hearing of the Secretary of Education's Commission on Higher Education.

    Representative Boehner has denied that he has been influenced by campaign contributions from the student loan industry. And Sallie Mae lobbyist Tom Joyce told the Chronicle of Higher Education, "We are interested in supporting candidates on both sides of the aisle who understand the importance of the federal student loan program."

    However, Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers, told the Chronicle, "One can't help but see Sallie Mae's imprint on the substance of the legislation that Mr. Boehner's committee has produced."

    It seems to be hard to lose money in the student loan business. Loans from banks and other lenders are guaranteed by state agencies (like California's EdFund) or other guarantors. If a student defaults on the loan, the guarantor pays off the loan, and the federal government reimburses the lender or the guarantor for at least 97 percent of the loss and also guarantees a certain rate of return.

    "This is a classic example of corporate welfare," said Richard W. Black, associate vice chancellor for admissions and enrollment at UC Berkeley. "Lenders pocket the interest and collect from the feds if the loan is defaulted. It's well-structured corporate welfare."

    But there is no equivalent welfare system for student borrowers, their parents and others who pay the bills.

    Average debt for undergraduates has more than doubled in the last decade, according to the Project on Student Debt. For graduates of four-year public institutions, average debt levels have risen to $18,000, accounting for inflation. For graduates of four-year private schools average debt levels are more than $20,000.

    Sixty percent of graduate and professional students borrow, with an average cumulative debt of $37,067, according to the website. Average debt ranges from $26,895, for those seeking master's degrees, to $113,661 for medical students.

    The Project on Student Debt also reported that 25 percent of graduating seniors in 2004 owed at least $25,000, and many owed $40,000 or more. The College Board reported that higher-cost private loans increased from ten percent of total borrowing to 18 percent in the last six years, as undergraduates reached the $23,000 maximum allowed for Stafford loans.

    "In the student loan industry's own estimate, 39 percent of student borrowers have an unmanageable debt burden after college," Anya Kamenetz, author of "Generation Debt: Why Now is a Terrible Time to be Young," wrote in a Christian Science Monitor op-ed article. That figure includes 55 percent of African Americans and 58 percent of Hispanics.

    As Pamela Burdman points out in an article on page 11, many low-income students, especially among minorities, immigrants and first-generation students, are unwilling to take on such large debt burdens and consequently do not seek education beyond high school.

    "The loan programs were originally intended to increase college participation by lower-income groups but have ended up benefiting the middle class," said Becky Timmons, of the American Council on Education.

    "The original idea was that (federal) grants would pay for access, and loans would provide choice," said Brett Lief, of the National Council of Higher Education Loan Programs. "But 30 years later, loans are being used for both access and choice, and that's not good. What we need is a more substantial grants program."

    A few well-endowed elite colleges and universities recently have announced that they will pay tuition, room and board for students from families with incomes below $50,000. However, such programs will assist only a tiny fraction of the student population.

    The Pell grant, for low-income students, has remained at $4,050 for five years. That is enough to pay tuition and mandatory fees at most two-year community colleges but is insufficient to finance an education at even the least expensive four-year institutions. During the 2004 election campaign, George Bush praised Pell grants and said he would increase them to $4,500, but his budget did not include the money to do so.

    "At a time when more students are eligible and needy, administration officials could have used the surplus to increase the Pell grant maximum," said Cynthia A. Littlefield, director of federal relations at the Association of Jesuit Colleges and Universities. "But they chose not to."

    More than 20 percent of student borrowers drop out, Lawrence Gladieux and Laura Perna found in a study published last May by the National Center for Public Policy and Higher Education (which also publishes National CrossTalk).

    Of all the students who began postsecondary education in the 1995-96 academic year, 23 percent were no longer enrolled in 2001.

    "That is, more than 350,000 beginning freshmen were left with no certificate or degree, and a debt to repay," Gladieux and Perna wrote.

    All of this makes little sense to those who worry about America's ability to compete in a global economy.

    Nationally syndicated columnist Neal Peirce recently noted that one day after Bush, in his January State of the Union address, called for a $5.9 billion American Competitiveness Initiative, to strengthen the country's math, science and engineering capabilities, the House of Representatives voted to make the biggest cut ever in the student loan programs.

    With tuitions rising and students forced to assume staggering debt burdens to pay for college, "What's the real hope for a scientifically advanced America?" Peirce asked.

    Many in the higher education community were disheartened by the decision to seek budget savings by cutting the student loan programs and by the lack of substantive debate in Congress.

    "The basic issues, the issues that should have been raised, were just glossed over," Gladieux said. "How much debt is too much? What should be done about students who really shouldn't be borrowing at all or are borrowing way too much? There is a lot of money to be made off these programs, so there isn't much incentive for change."

  • By Kathy Witkowsky
    Missoula, Montana

    (Photo by Michael Gallagher for CrossTalk)
    Last spring, Katie Christofferson was nearly debt-free and proud of it. After graduating from Flathead High School in 1997, she had financed three years at Flathead Valley Community College in her hometown of Kalispell, Montana, earning a 4.0 grade point average all but one semester, with scholarships and a $1,000 savings account that was a gift from her parents. Then, using her earnings, she had paid off thousands of dollars in credit card debt that her now ex-husband had racked up. Except for $600 she owed for a computer she bought for him, she was in the clear.

    But less than a year later, this 27-year-old single mother owes more than $14,000 in federal student loans and $1,500 to her parents. And if she is approved for a private alternative student loan she is hoping to obtain, she will owe another $7,000 to a bank. That money has financed just one year at the University of Montana in Missoula, where in-state tuition and fees cost $2,455 per semester, and where the average student debt upon graduation, for those who have loans, is $21,000. There, nearly nine years after she first enrolled in college, Christofferson will graduate in June with a bachelor's degree in business administration, with an emphasis in management.

    Then, she hopes, the investment will begin to pay off.

    Dealing with her ex-husband's financial troubles made Christofferson so wary of debt that for a long time she refused even to get a credit card. But following her divorce last spring, she realized the need for a college degree if she wanted financial security for herself and her four-year-old daughter, Mariah—even if that required going back into debt. "It just seemed like if I didn't finish it up, I'd never really be able to go anywhere, never be able to support myself," she said.

    Christofferson has always liked to work, and she enjoyed her last job, as office manager for the Kalispell Parking Commission, where she was employed part-time from April 2003 until May 2005. But she was only earning about $21,000. By Montana standards, that's not a bad salary, but nonetheless it was far less than her predecessor earned. She suspects that was at least in part because she had not completed college, whereas he had a master's degree. "I wasn't being paid for the work I was doing. But I didn't have a four-year degree," she said.

    Christofferson also had personal reasons for returning to school. "It was kind of a pride thing. Both my brothers have graduated, and they're younger than me," she said. (Andy, 26, graduated from Montana State University, in Bozeman, and is working toward a master's degree in England; Jake, 24, graduated from the University of Montana and is living in Sweden with his fiancee.) Both financed their schooling in part with student loans.

    Christofferson could have finished her four-year degree through Flathead Valley Community College. That would have been much less expensive than attending the University of Montana, and, in fact, cost was a major factor in her original decision to enroll at Flathead Valley. But she felt the need to make a fresh start after her divorce, which was finalized in April 2005.

    In May, with the encouragement of her mother, a retired elementary education counselor and now a part-time tutor, and her father, a contract pilot, Christofferson moved 120 miles south to Missoula, where she enrolled full-time at UM for the summer session. In exchange, her mother agreed to pay off a $7,500 car loan that Christofferson and her ex-husband had taken out together. ("I have every intention of paying her back. She just doesn't know it," said Christofferson, with characteristic determination.)

    Rather than taking on any kind of significant employment, which would cut into the time she could spend on academics or with Mariah, Christofferson chose to accept the maximum amount of financial aid offered to her. Despite her aversion to debt, taking out the loans was not a difficult decision. "People do it all the time," she said.

    Still, adjusting to life without a disposable income has not been easy. Christofferson has furnished her $550 per month, two-bedroom apartment in UM student housing with a comfortable couch, two televisions, a DVD player and several dozen DVDs, a computer, a nice bed with a premium mattress, and other remnants of her former dual-income lifestyle. But cash flow has been a problem.

    A year ago, she had been warned by the UM registrar's office that her financial aid package was not designed to cover the cost of raising a child, but nonetheless Christofferson has been frustrated. "They are basing my student loans purely on my needs, and if I have a dependent, then [according to them] I should have another source of income," she said. Christofferson is not looking for handouts, but she does wish the government would take into account her child's needs as well as her own.

    In May 2005, she received a $1,349 federal Pell grant and $4,757 in a federally subsidized Stafford loan, which was intended to see her through summer school. In addition, her mother had made a short-term loan of $2,200. Christofferson paid half of that back when her financial aid came through. But then rent, food, childcare, car insurance, phone, internet and other bills ate up all that money so quickly that Christofferson was unable to afford August rent. Instead, she delayed paying that bill until September, when she used part of her fall financial aid—which totaled $7,045, not including $1,000 she has been allotted in work-study income—to cover it.

    (Her aid package is identical for both fall and spring semesters, and it breaks down as follows: a $1,900 federal Pell grant; a $400 Federal Supplemental Educational Opportunity Grant; an $800 federal Perkins loan; $2,750 in a subsidized federal Stafford loan; $1,195 in an unsubsidized federal Stafford loan; and $1,000 in work-study earnings.)

    By last September, she had already spent more than her aid package had budgeted. Then she also had to buy new contact lenses for herself ($130), and pay for medical and dental checkups and immunizations for her daughter (about $100). She did manage to save $420 of the estimated $600 cost of her textbooks by purchasing them from an online discount bookseller, and even borrowed one from an instructor. (Sometimes, she hasn't bothered to get a required book at all, if she thought she could learn the material without it.)

    Christofferson also found other cost-cutting measures: In October, she qualified for a grant from Head Start that covered her childcare costs; and since June, she has been receiving about $50 a month in federal WIC (Women, Infants, Children) vouchers, which help defray her grocery bills.

    Still, by the end of October, Christofferson had once again run out of money. So she cashed out a $2,000 retirement account she had accrued when she worked for the Kalispell Parking Commission. Some of that money was used to buy clothes for a job interview, and some of it was spent on organic fruits and vegetables for her and her daughter. And after she loaned a large chunk of it to her ex-husband, that money, too, was gone.

    When Thanksgiving came, she was grateful to receive a holiday food basket from Mariah's Head Start program. Her parents also have given her about $400 toward grocery bills, she said. But her ex-husband hasn't paid any of the money he owes her, and she doesn't expect that he will.

    Even before the fall semester began, she had inquired about getting UM to revise her estimated budget, which was calculated to total $16,090 for both the fall and spring semesters, including personal expenses. But the people at the financial aid office didn't seem to know exactly what that would entail, and they told her it would require a lot of time-consuming paperwork, Christofferson said. And, with a full course-load and a four-year-old, time is at a premium in Christofferson's life. Indeed, last fall she only managed to log enough hours as an assistant to two professors to earn $100 of the full $1,000 she had been allotted in work-study money.

    In late December, Christofferson requested—and received—an $850 advance on her spring financial aid. But by February she had spent all of the money that was supposed to see her through the spring semester. Aside from $100 in monthly child support, she had no income because she had decided not to work at all this semester, preferring to focus on her five classes. Reluctantly, she broke her vow foreswearing credit cards, and applied for a Visa, which she used to buy groceries and to pay off her computer.

    Using a tax refund of a little more than $2,000, she was able to pay the balance on the credit card and other bills in March. But she still had a month and a half left before the end of the semester, and no money. Not only was she facing the usual expenses, but her childcare grant had expired at the end of February, so she had to cover that cost, too—about $430 a month.

    At the suggestion of the UM financial aid office, she asked her mother to co-sign an alternative, private student loan for her. But the bank turned down their request for $7,000 because her mother is retired. At press time, Christofferson was hoping her aunt would agree to co-sign the loan, which she said would not only get her through the first summer session, when she expects to graduate, but would also pay for first and last month's rent after she moves out of UM student housing.

    The good news, Christofferson said, is that there is light at the end of the tunnel. She has accepted a sales management trainee position in Billings, Montana, with Ferguson Enterprises, a nationwide distributor of plumbing supplies. She will begin July 10 at a starting salary of $32,000 annually, plus benefits. That's about 50 percent more than she has ever earned, and she's thrilled to re-enter the work force, this time as a college graduate. This feels like a good step toward her eventual goal: living in a small town, perhaps in Wyoming, with dogs and horses for Mariah, and a job in human resources or a similar field for herself.

    When asked how much her loan payments will be after graduation, Christofferson freely admitted she had "no clue." She wasn't even sure how the payments are calculated. She files her financial aid information in a plastic storage box underneath her desk, where much of it remains unopened. "I keep getting the statements in the mail, but I don't ever look at them. I don't want to add to my stress," she said. "What's the point in being concerned about it now? I've got enough things to worry about." She is optimistic that her new job will allow her to live comfortably and repay her debt.

    Consolidating her student loans before July 1, as experts recommend, will enable Christofferson to lock in an interest rate of 4.75 percent for the $14,247 she owes the government. According to a consolidation counselor with the non-profit Student Assistance Foundation, that will result in monthly payments of about $111 spread over the course of 15 years (a total of nearly $20,000).

    If she receives the $7,000 she is seeking in an alternative student loan, she will have to make other additional payments as well. Those will vary depending on the federal prime rate, and on how much the bank decides to charge on top of it; a representative of Wells Fargo, where Christofferson is applying for the loan, said the monthly payment could range from $65 to $110.

    The prospect of debt doesn't bother Christofferson. "I'm not worried," she said. "I've got a good job. And living in Billings is cheap."

    The first of her loan payments will be due six months after Christofferson leaves school, and the last of them will come due right about the time her daughter is due to enter college. Christofferson is hoping to be able to save enough money to pay for that. So even though Mariah is only four, Christofferson has already started a college savings account for her. There's about $1,200 in it.

    By Susan C. Thomson
    Champaign/Urbana, Illinois

    (Photo by Terry Farmer for CrossTalk)
    Looking back, Joshua Drake muses that he probably could have managed to graduate from the University of Illinois in three and a half concentrated years, instead of the five that it is taking him. The fifth year became necessary partly because he had to take a certain German class three times before he passed, but mostly because he wavered about a major. He began with physics, only to give that up for atmospheric sciences, before finally settling on history, which is the basis for the bachelor's degree he expects to receive in August.

    This fifth year has been a bank-breaker, forcing Drake to take on far more debt than in any previous year, some of it at a painfully high interest rate.

    Drake, 23, comes from Girard, Illinois, population 2,200, and from family circumstances he describes as "lower-middle class." For his freshman year, he received a one-time $1,200 scholarship from a donor in his hometown. Better yet, he started college on a solid financial footing, thanks to a full-tuition scholarship from the university for children of Illinois veterans, his largest single source of college funds for four years. But this year the scholarship ran out and he has had to replace it with loans.

    Drake's father, who served in the Army during the Vietnam years, is divorced from Drake's mother, who has remarried. Because she is her son's custodial parent, the calculation of the "expected family contribution" toward his college is based on her income as a nurse combined with his step-father's as an employee of the state of Illinois. Drake's 19-year-old sister Lisa also is attending college, at Southern Illinois University, Edwardsville—a further constraint on his parents' ability to provide for him.

    Drake says his family, including his father, has helped him out these five years to the extent possible, mostly with expenses for books, clothes and incidentals. He also has received several thousand dollars a year in need-based aid—a combination of federal Pell grants and grants from the Monetary Award Program of the Illinois Student Assistance Commission.

    Drake has helped himself by working and by living frugally. He started earning his own money when he was in high school, dispensing popcorn at a movie theater, cashiering and selling in a store, and stocking grocery shelves. At college, though eligible for federally subsidized work/study, he has scouted out his own on-campus jobs. He especially enjoyed being a "librarian" in a residence hall, checking books in and out of a small collection of recreational reading materials there. This year he is working as a cashier and sales clerk in the law school book store.

    The jobs have been good, he says, paying $6.50 to $9 an hour, adding up to about 15 usually flexible hours a week, accommodating his class schedule and pressing academic deadlines. And he kept right on working through the summers. Even last summer, when Drake attended a camp for Christian college students in Michigan, he did maintenance work for a stipend of $60 a week.

    Drake has lived in university residence halls all five years now, and he all but apologizes for doing so. He knows he could have saved money by moving off-campus, but the neatness and predictability of just two annual room and board payments, made through his university account, appeal to him more than writing monthly rent checks and worrying about potentially deadbeat roommates.

    In addition to the room, Drake allows himself movies, basketball tickets, one meal out a week and a couple of shows every semester at the university's Krannert Center for the Performing Arts. Otherwise, he has mastered the art of doing without. The television in the room is his roommate's, and they don't subscribe to cable.

    By buying used books and checking out library copies, he says, he has held his outlay for books to around $100 a semester. He doesn't have a cell phone—"one of the only students who doesn't," he joked. Likewise, he is one of the few who does not have a credit card, which he dismisses as too much of a temptation.

    It has never been in the numbers for Drake to parlay all of his sacrifices, scholarships, jobs and grants into anything close to the full cost of his education. Because he started college in 2001, three years before a state law began requiring Illinois public universities to guarantee freshmen the same rate for four years, his tuition has been increasing annually, to $6,436 this year. Adding transportation, books, room and board and personal expenses, the university estimates his total cost to be $18,634 this year, a 22 percent increase since his freshman year.

    It was always a given that he would need to borrow. But until this year he had kept loans in check, racking up a relatively modest total of $15,000 over four years, all in federally subsidized Stafford loans.

    Drake, easy-going but realistic, took stock two years ago and came to terms with the inevitability of this extra year. "When I had to make the decision that I would have to be here for a fifth year, I did that knowing that it would be more expensive," he said.

    He knew his tuition grant for being a veteran's child would be a goner, but it turned out the delay in graduating cost him the need-based award from the Illinois Student Assistance Commission as well. For the second year now, the commission has been pegging its awards to the number of credit hours students have taken. By this semester, Drake had amassed so many that he had used up his eligibility. Fortunately, the university made up most of his loss with a need-based grant from its own funds.

    To help make ends meet this year, Drake gave up his car, a 1989 Pontiac Bonneville with 311,000 miles on it. He got only $400 for the car but figures he saved an annual outlay of about $2,500 for gas, parking, maintenance and insurance.

    Still, he had to go into hock for more than $9,000 to finance the fifth year, increasing by more than two-thirds what he will owe after he graduates.

    After maxing out his Stafford loans to a total of $20,795, he turned to the "alternative market" of private lenders for a $3,500 "signature student loan." These are available through selected bank partners of Sallie Mae at interest rates no less than prime, now about 7.5 percent, and with up to six more percentage points tacked on depending on the credit worthiness of the borrower. Vincent E. Martinez, a financial aid counselor at the University of Illinois, says these loans are "becoming very common" as more and more students turn to them after stretching their Stafford loans to the limit.

    Drake got his signature loan at a rate of 10.25 percent. Yes, he knows that is high but "it's better than dropping out of school," he said. "At the point that I worked out this loan, I was looking at taking a semester off to work and save the money." One good thing is that he will have up to 25 years to repay the loan to Sallie Mae. But given the high interest rate, he says this is the first loan he'll want to pay off.

    At its current interest rate of 5.3 percent, and for a typical payback period of ten years, Drake will owe about $225 a month on his Stafford loan. Because the University of Illinois participates in the federal "direct lending" program, he will be making those checks out to the U.S. Treasury, not to a private lender.

    Repayments start six months after graduation. By then Drake hopes to have pinned down a job, perhaps in Illinois state government, perhaps in a museum or archive, perhaps in something using the writing and research skills he learned from his history major. He is also toying with the idea of seeking certification to teach high school history. "I guess I don't have a specific career in mind at this point," he admitted.

    He does, however, have in mind a specific young woman who is to graduate in May from Calvin College in her hometown of Grand Rapids, Michigan. She might move to Illinois; he might move to Grand Rapids. It all depends on where the two of them can best find jobs. "We don't know how that's going to work right now," he said.

    Drake is clear on this much: "I plan on continuing to live frugally and pay off my loans in the shortest time possible," he told Martinez. "I've been used to living cheaply. If I can do this for two or three years (after graduation), I ought to be able to pay off the bulk of them pretty quickly."

    Not so fast, counseled Martinez. He praised Drake for being more realistic about his debt than many students. "A lot of people, when they get out of school, they plan on buying a house, a car," he said. On the other hand, he thought Drake's idea of wiping out most of his debt in two or three years was too ambitious. "Don't over-commit," he warned. Better to choose a longer payment period with lower monthly payments and add extra money as available, he said. "You can always pay down the principal."

    By Susan C. Thomson
    Cape Girardeau, Missouri

    (Photo by Brian Cassidy, Black Star, for CrossTalk)
    Joh-Anna Kirkland marvels at how far she has come. At 22, she is a semester and a half shy of becoming the first person in her family to graduate from college. Her mother and various aunts and uncles started college, she said. "But nobody's come as close as I have" to going the distance. She is counting down the months until next December, when she is due to get her bachelor's degree in fashion merchandising from Southeast Missouri State University.

    Kirkland is excited about the prospect, but it also gives her pause. "I'm so worried about getting a job," she said. And with reason. She'll need a job because, as she is all too well aware, graduation will start the clock ticking toward the time of reckoning on her student loans.

    She has three kinds of federal loans—a subsidized Stafford loan of $13,226, an unsubsidized Stafford loan of $4,000, both borrowed from a local bank and now held by the Missouri Higher Education Loan Authority, and a Perkins loan of $7,548 from the university's pool of federal funds for that program. That's $24,774 altogether, already about 50 percent more than the average debt of a Southeast Missouri graduate, and that does not include whatever money Kirkland will have to borrow to make it through her last semester.

    Kirkland also has received $16,150 in federal Pell grants that do not have to be repaid. She says she was unaware of any other grants or scholarships for which she might have been eligible. "I thought loans were the only way," she said.

    A congenial young woman with a ready smile and a positive attitude, Kirkland is among the slightly more than eight percent of Southeast's 10,300 students who are African American, and she is used to sacrificing for her education. From sixth grade on, she took part in the St. Louis area's voluntary desegregation program, riding school buses 50 minutes from her home in a predominantly black city neighborhood to attend predominantly white schools in the suburbs. Between the commutes and the demanding homework, she had to forego extracurricular activities at the academically oriented high school where she graduated in 2002.

    At Southeast Missouri State, in a turnabout, Kirkland plunged into the social life. She joined Delta Sigma Theta, a national African American sorority, which has elected her vice president. She also serves as an orientation leader, a student "ambassador," leading tours for visiting prospective students and their families, and as a "presidential ambassador," representing students and greeting people at pubic events with Southeast President Kenneth Dobbins.

    This is Kirkland's second semester as a residence hall adviser, a job that gives her free room and board but also demands her time and energy. "I'm in charge of a whole bunch of freshmen," she said, sounding impatient, as seniors can about freshmen. "That can be pretty stressful." On the other hand, she said, brightening, "I just like being involved, I guess."

    But now, with graduation upon her, she is determined to be a little less involved. "I'm cutting down on my extracurriculars so I can concentrate on school and exercise," Kirkland said. She frets that she is out of shape and that, although her grades are satisfactory, they could definitely be better. "They are going to be better," she promised, because the better they are, the better her chances of getting the job she will need to pay off those loans.

    Kirkland is the oldest of three daughters of a single mother. "We are all smart kids, and I think me being in college is helping my other sisters realize that they can do it, too." Janyce, 17, is a junior in high school who is definitely planning on college and wants to be an emergency room physician. Jessica, 12, is a sixth grader who harbors dreams of becoming an Olympic swimmer.

    "We were never really poor," Kirkland said. "There were just more mouths to feed" as the younger two girls came along, and as her mother "just kind of got down on her luck." Her mother now works as a family specialist in a middle school, a kind of liaison between teachers, counselors and troubled students. But her income is such that her contributions to Kirkland's college expenses have been mostly limited to birthday cash and the occasional bailout on her $40 monthly cell phone bill. As a result, Kirkland has been on her own to finance college and almost all of her other expenses.

    She admits a weakness for clothes, and jokes that she has enough of them that she can go for more than a month without doing laundry. "I know my limit," she said. "But I'm in fashion merchandising, so I try not to buy really cheap clothes because I know they won't last." But Kirkland insisted she's not extravagant, pointing out that she doesn't have a car and relies on public transportation at home, and rides from friends at school—always contributing toward the gas, she added. But being without a car, plus going to school most summers, has had a down side: Kirkland says she simply hasn't been able to work any off-campus jobs.

    For her student orientation and ambassadorial jobs the university pays Kirkland the Missouri minimum wage of $5.50 an hour, but because the work is irregular, she ran into "a rough period" a year or so ago when her expenses outran her income. She put the difference on her credit card, on which she now owes $1,300. She is just now starting to work the balance down.

    Kirkland limited her college search to Missouri's state schools. She chose Southeast because it offered the major she wanted and was only two hours from home. "I didn't know a lot about college or paying for college," she said. As for the cost of Southeast, she said, "I don't think it's that expensive."

    It isn't, compared with many public universities in other states. But against a backdrop of state budget cuts, the average has been mounting. This year, tuition, room and board and fees at Southeast total $5,240 a semester for a typical undergraduate taking 15 credit hours. That's an increase of 18 percent from $4,428 when Kirkland was a freshman, and that does not include books and miscellaneous expenses. She was angry at first about the cost increases, but she came to understand "the university has to maintain things." Still, with her free room and board this year, and with almost all of her other bills covered by financial aid, she is far better off financially than in her freshman year, when her aid package came up about $3,000 short.

    Kirkland was not sure how much all her loans added up to—not unusual for a student, said Karen Walker, Southeast's director of financial aid. When Joh-Anna sat down with Walker and learned that the total was already nudging $25,000, she didn't visibly flinch. Later, though, she confessed to being surprised. "I thought I had borrowed significantly less money than that, but I think it's great compared to some students who leave school with $40,000 or $50,000 in loans," she said.

    Also, while admitting to being "a little nervous" about them, Kirkland did not have any idea what her monthly loan payments might be after graduation. Walker did the calculations. Given annual interest rates of five percent on the Perkins, 5.3 percent on the two Staffords (with 4.7 percent already accruing on the unsubsidized Stafford), she figured Kirkland would owe between $248 and $266 a month for ten years. Kirkland was unfazed. "I don't think that's a lot to pay when I've invested in my education," she said.

    Post-graduation grace periods of nine months on the Perkins loan and six months on the Staffords before her repayments begin may be just enough time for Kirkland to realize her dream of moving to Florida with a friend, finding an apartment to share and getting a job.

    As for the loans, "I'm not planning on not paying them back," she said. "I might not be able to have a cell phone, and I have no problem using public transportation," she added, realizing that a car probably will be as much out of the question as ever. "I pretty much know I'm going to be able to have the basic things."

    But first there is one last semester to get through and pay for. Kirkland thinks she can save some money by moving off campus. Otherwise, she will apply for all possible financial aid and "take it as it comes."

    By Lori Valigra
    Storrs, Connecticut

    (Photo by Dana Smith, Black Star, for CrossTalk)
    Thomas Dillon, a 19-year-old sophomore at the University of Connecticut, will have accumulated about $170,000 in student loans by the time he graduates from the university's pharmacy program in four years. But he is optimistic about the prospects of paying off the debt.

    Jobs for pharmacy school graduates are plentiful, Dillon said, and he expects to earn at least $90,000 a year after graduation. His parents, who have a six-figure income, have promised $12,000 a year toward his debt. A careful planner, Dillon has included rent, car payments, other expenses, even marriage (after graduation) to his girlfriend, who will bring her own student loan debts to the match. "After six years in school I'll have a doctorate and a guaranteed job," he said. "But it will take ten years to pay back."

    Dillon, who is from Warwick, Rhode Island, chose to enroll at the University of Connecticut School of Pharmacy, instead of the much less expensive College of Pharmacy at the University of Rhode Island, because he liked the program and the way the school treated him. Dillon was unable to get an appointment with the Rhode Island dean, but UConn set up a visit with a current student and with a dean before he made his final choice.

    That "made me feel comfortable," Dillon said. "That is important to me because I would be there six years and I need to get good grades." Although the programs at the two schools are comparable, he added, the University of Connecticut has a new state-of-the-art pharmacy and biology building.

    UConn's personal interest in him reminded Dillon of why he had become interested in being a pharmacist in the first place. As a child with epilepsy, he found that his local pharmacist not only took care of his medical needs but also was concerned about his overall well-being. "On top of knowing what (medicine) I was taking, and how it was affecting me, she knew all about my life, like if I had a baseball game, and how I did," he said. "So she really was an integral part of my life."

    In high school, when Dillon was trying to figure out what to do with his life, he discovered that he liked math and science and that he liked helping people. "Having that person who was there for me when I was little and going through a hard time made me think being a pharmacist would be a good career," he said.

    The decision to attend the University of Connecticut, instead of his home state pharmacy school, is costing Dillon thousands of dollars in additional out-of-state tuition and fees each year. Total charges for an out-of-state undergraduate year at UConn, including tuition and fees, room and board and other expenses, are $28,120, according to the university's website. The University of Rhode Island would have cost less than half that amount. If Dillon is accepted into the UConn pharmacy program after his first two years, he faces a sharp increase in tuition-from $18,600 for the first four years to $29,178 in the fifth and sixth years.

    Dillon works part-time at a pharmacy near his home town, but most of the cost of his education, except for the $12,000 a year from his parents, is being financed by loans.

    Last year, his freshman year at the University of Connecticut, Dillon borrowed $24,375 in federally guaranteed loans that were co-signed by his parents. These included a $20,000 Sallie Mae loan, through the Bank of America, at a 6.1 percent interest rate, and $4,375 in an unsubsidized federal Stafford loan at 4.7 percent. This year he borrowed $25,000 from American Education Services, at 7.6 percent, and took another unsubsidized Stafford loan of $6,125, at 4.7 percent.

    Unsubsidized Stafford loans are not awarded on need, although they do take into account parental income in determining the loan amount granted. Interest is charged from the time the loan is disbursed until it is paid in full. Interest accrues while the student is still in school and is added to the principal amount of the loan. That means Dillon will have to pay more than he anticipates—the principal plus whatever interest he has not paid off. Dillon's parents are paying the interest on his freshman year Stafford loan, but they are letting the interest accumulate on the sophomore year loan.

    Congress recently voted to raise interest rates July 1 on new Stafford loans to a fixed 6.8 percent. Before, they had a variable rate as low as the 4.7 percent that Dillon secured. The interest rate increase is one of the changes in student loan legislation that are expected to generate about $13 billion in new revenue and is part of an effort to reduce the federal budget deficit by about $40 billion. However, critics charge that too much of the burden will fall on student borrowers.

    "I'll come out of school with an average of $16,000 in debt per year," Dillon said. "It's certainly a big amount, but I thought the school I went to would be more important than what the debt was. You only go to college once, and you want the best experience and the best grades. I thought UConn would be better able to do that for me than URI." His parents encouraged him to think through the decision and its consequences carefully, reminding him they would pay $12,000 a year, regardless of his choice.

    Dillon is not the only family member with college debt. His father, Thomas, a manager at a software technology company, still is paying off his own loans from returning to school to get a law degree. Sister Rachel, 18, soon will enter college to study special education, and sisters Rebecca, 15, and Olivia, 13, are not far behind. Dillon's mother, Sheila, works for Brown University's alumni magazine.

    At the end of this year Dillon will enter UConn's four-year combined bachelor's/doctoral pharmacy program if his grades are good enough. He needs an overall grade point average of 3.0, with at least 3.5 in all required math and science classes. Right now, Dillon's grade point average is slightly below 3.0, but he is confident he will make the cut.

    In fact, he appears to be confident about most things. He has already figured out his loan repayment schedule, after graduation in 2010: After deducting the $12,000 in annual assistance from his parents, Dillon figures he will owe about $98,000 and that he can pay this off in ten years.

    Ever the planner, Dillon has a back-up scenario should he decide to go into another branch of pharmacy instead of becoming a pharmacist. Pharmacy is a broad major, he explained, and other options include becoming part of a drug research team at a pharmaceutical company or going into the business end of pharmaceuticals.

    He will know in May whether his grades are good enough to enter the pharmacist program. If admitted, he will have four more years of intense study, including nine internship rotations in different types of pharmacies.

    "I'm gung ho right now to become an over-the-counter pharmacist in a drug store," he said. "But I'm also interested in doing research and being involved in how drugs are made, or being a manager in the business end of a big manufacturing company."

    Although he describes himself as conservative, Dillon expressed concern about the debt that today's students must take on to get a college education. On the website, he wrote, "To get ahead in life and have a great job, in this day and age, it is mostly a requirement to go to college, but by doing this students start out ten steps behind. Tuition costs loom over students and their decisions for years before and after their graduation. Students should come out of college as new members of society without being put so far behind from the start."

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    National CrossTalk Spring 2006



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