The Joplin Globe, Joplin, MO

June 9, 2012

Student loan interest set to double unless Congress takes steps

By Emily Younker
Globe Staff Writer

— If all goes according to plan, Samantha Evans will find a government job upon graduation as a crime scene analyst or a forensic officer. She also eyes possibly working with the FBI or the Secret Service eventually.

But there’s a cloud hanging over those hopes — the $25,000 that she has so far borrowed to pay for her education at Missouri Southern State University.

“I’m terrified,” Evans, a 21-year-old criminal justice administration major from Lampe, said recently. “That’s a big number. That’s a lot of money that I don’t have.”

Evans is not alone. Millions of students nationwide pay for at least part of their college education through loans and consequently amass a growing amount of debt, estimated to have reached $1 trillion last year, according to the federal government’s Consumer Financial Protection Bureau.

The Federal Reserve Bank of New York, meanwhile, estimates in a report published last month that student loan debt reached $904 billion in the first quarter of this year. Total student loan debt — which outweighs the $679 billion Americans owe on credit cards — has increased by $663 billion in the past decade, according to the report.

Two-thirds of college seniors across the country graduated with loans in 2010, according to the Project on Student Debt, which is part of the Institute for College Access and Success, an Oakland, Calif.-based nonprofit that researches issues in higher education.

The average debt for college seniors of the class of 2010 was $25,250, a 5 percent increase from the previous year, the group reports. More than half of students in Missouri, Kansas and Oklahoma leave college with debt, averaging between $20,000 and $22,000 per student. The data come from voluntarily reported debt information from about half of the country’s not-for-profit, four-year colleges and universities.

William Brewer Jr., head of the National Association of Consumer Bankruptcy Attorneys, issued a warning this spring, predicting that America’s student loan debt could trigger the country’s next great financial crisis, doing to the economy what housing debt did a few years ago.

“This could very well be the next debt bomb for the U.S. economy,” he said.

Higher rates ?

Legislators are currently debating what to do about the crisis.

Interest rates on new federally subsidized Stafford loans, designed for low- and middle-income undergraduates, are set to rise to 6.8 percent from 3.4 percent on July 1. A subsidized loan is one in which interest is paid by the government as long as the student is enrolled full-time.

The U.S. Department of Education estimates that 7.4 million students will borrow $31.6 billion in such loans in the 12 months beginning July 1. These loans generally are paid off over a decade or more after graduation.

Allowing interest rates to double would cost the typical student about $1,000 more over the life of the loan, federal officials say.

During his State of the Union speech in January, President Barack Obama urged Congress to prevent the rates from doubling this summer. And Congress appears to favor extending the 3.4 percent rate for another year, but politicians have clashed over how to pay for it.

In May, Republicans and Democrats in the U.S. Senate each shot down the other party’s proposal for paying the $6 billion cost. Democrats had proposed raising Social Security and Medicare payroll taxes on high-earning owners of some privately held companies and professional practices, while Republicans would have abolished an Obama preventive health program.

Talks have continued into June, with Republicans earlier this week proposing some cost-cutting measures that have been suggested by the president in the past, such as gradually increasing the amount that federal workers contribute to their pensions and reducing federal Medicaid reimbursements to states.

U.S. Sens. Roy Blunt, a Republican, and Claire McCaskill, a Democrat, as well as U.S. Rep. Billy Long, R-Mo., have publicly pledged their support of capping the interest rate at 3.4 percent if a mechanism to pay for it can be reached.

‘Prepare for worst’

Evans, the MSSU student, said loans are the only way she has been able to attend MSSU. She said she doesn’t qualify for grants and is financially independent from her parents. She also works at MSSU’s Beimdiek Recreation Center and as a resident assistant in her dorm — two jobs that provide enough money to cover other living expenses.

“I could not go to school without them,” she said of her loans. “They were an absolute necessity for me.”

Evans said most of her loans are unsubsidized, which means that interest began accruing the day she signed the papers. She predicts that she could owe between $30,000 and $40,000, including interest, by the time she graduates in the next two years.

A self-proclaimed “worrywart,” she has already begun thinking about what she might do if she is unable to find a job after graduation — joining the military is an option, she said — or if her payment installments are too high.

“I’m prepared for the worst, but I don’t want to go down that road if I don’t have to,” she said.

In the meantime, Evans said she is studying hard and networking, hoping her efforts will land her the job she wants and needs after graduation so she can begin repaying her loans.

Daniel Fedewa, 25, decided to return to college a year and a half ago after working in retail for several years. Now an accounting major at MSSU aspiring to be a certified public accountant or a broker, he was motivated by finances and family to get a “better career and better future,” he said last week on the university campus.

“I’m poor, and I want to make more money and support the person who’s calling me right now,” he said, glancing down as the cellphone in his hand began ringing with an incoming call from his wife, Michelle.

Fedewa said he pays for his education through a mix of federally subsidized and unsubsidized loans as well as one grant. He estimates he borrows at least $2,000 per semester to cover tuition — and a little extra for living expenses for himself and his wife, who is due to give birth to a boy this month. He has borrowed $1,500 for two courses this summer.

“I’m trying to take out enough, too, to supplement (Michelle) not working now,” he said.

Fedewa anticipates a debt of up to $40,000 when he graduates in two years. His wife has student loan debt of her own, which she has already begun paying back. The number of years it will take for the couple to pay off all their loans is expected to be lengthy — perhaps decades, Fedewa said.

Gesturing, when talking about student loans, Fedewa indicated his debt is “up to his eyeballs.”

He put his hand at eye level and then raised it above his head to demonstrate the overwhelming nature of the couple’s debt.

“The debt’s more like to the ceiling,” he said. “I try not to think about it.”

Increase in borrowing

Most colleges and universities report student debt information. But administrators and researchers warn that the statistics can vary widely depending on factors such as the grade level of the students, the type of college or university, the amount of additional financial aid students receive, what type of financial background students come from, or whether students already had loans when they began their education at a particular institution.

Nearly 90 percent of MSSU students receive some kind of federal financial aid, which includes loans or grants, said Becca Diskin, director of financial aid. Graduating seniors leave MSSU with an average debt of $18,000 per student, she said.

When asked whether she thinks students today borrow more than they did in past years, Diskin, who has worked in financial services since 1994, said yes.

“I think a lot of people aren’t prepared (financially) for college when the time comes,” she said. “More students are borrowing, and many students are borrowing more.”

At Pittsburg (Kan.) State University, nearly 78 percent of undergraduates in the class of 2011 had federal loans averaging $21,634, according to William Ivy, associate vice president for enrollment management and student success.

Up to 75 percent of students at Northeastern Oklahoma A&M College, a two-year college in Miami, take out loans, according to David Fisher, director of financial aid.

About one-fifth of students at Crowder College, a two-year college in Neosho, have loans, and average indebtedness for graduates is $7,300, according to Michelle Paul, director of financial aid.

Paul, who has worked in financial aid since 1995, said she saw an uptick in student borrowing when the economy collapsed a few years ago. And some students borrow more than simply the cost of their tuition, she said.

“The economy affects student loan borrowing because a lot of students, when they were losing their jobs, they came back to school,” she said. “In order to do that, they had to borrow money. When they were trying to pay all of their other living expenses as well, they started borrowing money.”

The Project on Student Debt report theorizes that the sluggish economy “(widened) the gap between rising college costs and what students and their parents could afford.” In particular, cuts in state funding for public colleges and universities have been met by steep increases in tuition, which has in many cases forced more students to take out loans, the report notes.

“In general, (rising student debt) is because college costs continue to go up, and family resources and available grant aid don’t always go up,” said Matthew Reed, the report’s author, in a telephone interview Wednesday. Reed is also the program director of the Institute for College Access and Success.

When asked whether rising student debt is of concern, Reed said yes. He said it impacts borrowers, who because of their debt report delaying other major life events, such as buying a house. It also could impact prospective students, he said.

“It may deter some of them from doing what they have to do to get into college,” he said.

The Associated Press contributed to this report.