This article first appeared in the St. Louis Beacon, April 4, 2010 - At a time when the cost of higher education continues to rise and the job market for recent graduates is somewhat tenuous, thinking about paying off student loans can make a person queasy.
The uphill battle facing those seeking to repay hefty loans isn't lost on policymakers, but recently passed legislation overhauling the federal student-loan program did relatively little to help borrowers.
Starting in July, the U.S. Department of Education will make all student loans, ending the system of the government guaranteeing loans from banks and other private lenders. The $61 billion in expected savings over 10 years will, among other things, bolster the Pell Grant program for financially needy students. (Many colleges have moved to include more grants and fewer loans in their financial aid packages).
Borrowers will still get the same loans on mostly the same terms. The interest rate of PLUS loans for parents and graduate/professional students is slightly less for the government's direct-loan program than for the soon-to-be extinct bank-based program. The rate on Stafford loans for undergraduates and graduates remains the same.
The legislation makes changes to the income-based repayment program, which enables graduates to repay loans based on their reported income. Under this plan, students who borrow money for school will be able to cap their loan repayments at 10 percent of their discretionary income instead of the current 15 percent. If students stay current on payments, remaining debt will be forgiven after 20 years, or 10 years if they are in a public-service field.
Still, these changes only apply to loans taken out by new borrowers after June 30, 2014. They are not retroactive.
And the law omitted a previously included provision that would have reduced the interest rate on students' loan payments and remade the federal Perkins Loan Program, which provides low-interest loans to students. Under one proposal, the law would have kept the interest rate that some borrowers pay on their federally subsidized loans at 3.4 percent beyond 2012, when the rate is set to jump to 6.8 percent.
The significance of this might not be evident to someone who hasn't heavily financed their education. But the stories of three former students from the area provide some insight into what it's like to be a borrower during recessionary times.
Three Degrees and a Mountain of Loans to Repay
Jennifer Belmont Jennings is a Washington University graduate three times over. The 29-year-old earned a bachelor's, master's and law degree from the institution, and she took out more than $150,000 in loans (primarily for law school) to help finance her education.
Borrowing that much money wasn't ideal, but Jennings had what seemed like a feasible financial plan for her future.
"I was under no impression that I was guaranteed or entitled to a six-figure job out of school, but I was at least figuring I'd have a job that would pay enough that I could reasonably pay off my loans in a few years while living frugally for three to five years," Jennings said.
But she entered the legal job market at one of the worst times in recent memory. Jennings found a job doing research for a political consulting firm -- work she says she enjoys. Still, she's not earning nearly as much as she'd hoped, which throws off her financial plan.
"I'll be living frugally for a lot longer than three to five years," Jennings said. "My entire salary goes to pay for student loans, and we're living on my husband's salary. It's daunting to think that my husband and I could be enslaved to this for the next 25 years. Maybe we'll never have kids because we can't afford it."
Many of her classmates who came to law school with the hopes of getting into a public-service field have taken any job they can get and feel trapped, Jennings said. It's hard for many graduates who borrowed large sums to accept a lower-paying job, even if that position better suits them.
Jennings said a loan forgiveness program for people who work in public service wouldn't work for her because her current position doesn't count toward that program, and she can't guarantee she'd be able to log 120 months of public-service work that is necessary to make it worth her while. Jennings also would have to consolidate her loans to qualify, and her interest rate would be higher, meaning if she didn't make the 120-month requirement, interest would accrue on her loans and she'd end up paying more in the long run.
And she also doesn't plan to take advantage of the income-based repayment plan. The majority of her loans are unsubsidized, which means interest will continue to accrue as payments are stretched out. If her income rises, she'll never be able to take advantage of the 25-year forgiveness option because she won't qualify for it; she'll only have added a sizable amount of interest to her debt. If her income stays the same for 25 years and her remaining $200,000 debt is forgiven, she could be taxed on this.
Jennings also expressed concern that debt forgiveness discourages those who haven't dedicated their lives to public service from taking responsibility for loans.
Jennings said she knew she was making a choice to attend an expensive law school. "I'm not an advocate of forgiving student loans. I have no problem paying off what I owe. I just have a problem with how the loans are structured and how it prevents us from giving back to our community."
Jennings said more students need to understand that lowering their monthly payments isn't the primary issue. If it takes them 25 years to pay off their loans, it could end up costing twice what they took out, she said.
The issue, Jennings said, is interest rates, which lawmakers voted to fix at 6.5 (for Stafford) and 8.5 percent (for PLUS loans) for federal direct loans disbursed on or after July 1, 2006. She considers those rates "unreasonably high." Prior to 2006, the interest rates were set by a Treasury bill auction. If still done this way, Stafford and PLUS loans would be in the 2 to 3 percent range for this year.
Jennings wants a return to the variable-rate program with a maximum interest-rate cap at 5 percent. She also would like the ability to consolidate and reconsolidate at Treasury bill rates each year if the rates improve. She'd like to see this apply to current students and those who have already graduated and not just to people who take out loans after a certain date.
Jennings said lawmakers have focused on helping students who are just entering college afford their education, but continue to ignore recent graduates who entered the job market in a dismal economy.
"The government has been bailing out irresponsible businesses, people who have bought homes they couldn't afford, or 'things' they couldn't afford, yet those of us who have chosen to pursue education, and have graduated in such a terrible economy are struggling to pay these loans off, and are hardly seeing any return on this 'investment' we're told that education is," she said in an e-mail.
John Cook graduated from college in the 1980s with a bachelor's degree in electrical engineering. Since then he's earned two master's degrees. All his schooling has been paid for with loans.
"They've given me a chance to do everything I wanted to do," Cook, 52, said. "I hear and read about students who have trouble finding money, but I came from a middle-class family and always found that money was available to me."
Cook still owes roughly $40,000 in student loans. He earned a nursing degree at the University of Phoenix in 2006 -- a two-year program that cost nearly $30,000 a year. Cook said to make the loan payments manageable, he extended them over a 25-year period.
During financially tough times he renegotiated the loans. "[Lenders] are good about helping you through those years," he said.
Cook now finds himself in another one of those financially precarious situations. While there's plenty of need for nurse educators, many colleges are in the midst of hiring freezes. He's struggled to find full-time teaching positions; part-time hospital openings are far more frequent.
Now living in Jefferson City, Cook said "there's not much out there now at colleges."
Cook's financial plans were predicated on making low monthly payments and earning a full-time salary. With the latter being hard to find and sustain, he's had a more difficult time than expected making his payments.
Still, Cook said he has no ill will toward his lender. "The loan is exactly what they said it was going to be," he said.
Out of Sight, Out of Mind -- For Now
Days, sometimes weeks go by when Laila Dawn doesn't think about her student loans.
Dawn, 36, graduated in December with a bachelor's degree in social work from the University of Missouri-St. Louis. She's still within the six-month period after graduation when, because of a decision to defer loans, she doesn't have to begin paying them back.
But that won't last for long.
"I'm sitting here with a folder in my lap," Dawn said from her Raymondville, Mo., home. "It's as thick as a novel with all my financial statements and paperwork from each semester. I don't even know how to begin dealing with this."
Dawn went into the UMSL program expecting her monthly loan repayments would be low. She went through a required student aid program at UMSL, but she said she did it between classes and the information "just washed right over me. There's so much information on all these types of loans that they all melt together until it's all just one big urban legend," she said.
Dawn received a mixture of subsidized and unsubsidized loans, personal loans for summer and Pell Grants. She said she can't decide whether it's worth consolidating her loans.
"I've tallied it all up once and promptly put it out of my head when the amount I needed to repay got close to 50 grand," she said. "I'm not going to open that folder until 30 days before my first payment is due."
Meanwhile, Dawn hasn't been able to find a job in social work. She's been volunteering at a food pantry and has an eight-week job lined up for the spring. Dawn said she's willing to open her search to include any full-time job.
Because she's had such a hard time finding work, Dawn said she's beginning to reconsider the decision to get her degree. "They tell you, 'Get your education and it makes your life better.' But so far that's not what I'm finding.'"
Still, Dawn is moving ahead with plans to make a career in social work. "I went into the field because I love it, even though I knew the pay was low. I'd hate to think that I wouldn't take a good job based on the fact that it would make it harder to pay back my loans."
She's proceeding with a certain amount of resignation about her financial future.
"This is going to be the until-the-day-I-die loan repayment plan, I fear," Dawn said.