From The Real World
Este Griffith had it all figured out. When she graduated from the University of Pittsburgh in April 2001, she had her sights set on one thing: working for a labor union.The real world had other ideas. Griffith left school with not only a degree, but a boatload of debt. She owed $15,000 in student loans and had racked up $4,000 in credit card debt for books, groceries and other expenses. No labor union job could pay enough to bail her out.
So Griffith went to work instead for a Washington, D.C., firm that specializes in economic development. Problem solved? Nope. At age 24, she takes home about $1,800 a month, $1,200 of which disappears to pay her rent. Add another $180 a month to retire her student loans and $300 a month to whittle down her credit card balance. "You do the math," she says.
Griffith has practically no money to live on. She brown-bags her lunch and bikes to work. Above all, she fears she'll never own a house or be able to retire. It's not that she regrets getting her degree. "But they don't tell you that the trade-off is the next ten years of your income," she says.
That's precisely the deal being made by more and more college students: They're mortgaging their futures to meet soaring tuition costs and other college expenses. Like Griffith, they're facing a one-two punch at graduation: hefty student loans and smothering credit card debt -- not to mention a job market that, for now anyway, is dismal.
"We are forcing our children to make a choice between two evils," says Elizabeth Warren, a Harvard Law professor and expert on bankruptcy. "Skip college and face a life of diminished opportunity, or go to college and face a life shackled by debt."
Don't think this Catch-22 only traps those shelling out big bucks for schools like Harvard or Yale. The eight in ten paying for a public college or university are also in for sticker shock. For the past two decades, tuition at these schools has zoomed far above inflation. Last year, the annual tuition and fees at four-year public colleges averaged $4,081 (room and board added another $5,582). That was a leap from the previous year of 9.6 percent -- six times the rate of inflation, then less than 2 percent. This year, the increase at certain schools was even more dramatic. Tuition at the University of Virginia and the University of California rose nearly 30 percent, and at the University of Arizona it jumped by 40 percent.
For some time, colleges have insisted their steep tuition hikes are needed to pay for cutting-edge technologies, faculty and administration salaries, and rising health care costs. Now there's a new culprit: shrinking state support. Caught in a severe budget crunch, many states have sharply scaled back their funding for higher education.
Someone had to make up for those lost dollars. And you can guess who -- especially if you live in Massachusetts, which last year hiked its tuition and fees by 24 percent, after funding dropped by 3 percent, or in Missouri, where appropriations fell by 10 percent, but tuition rose at double that rate. About one-third of the states, in fact, have increased tuition and fees by more than 10 percent.
One of those states is California, and Janet Burrell's family is feeling the pain. A bookkeeper in Torrance, Burrell has a daughter at the University of California at Davis. Meanwhile, her sons attend two-year colleges because Burrell can't afford to have all of them in four-year schools at once.
Meanwhile, even with tuition hikes, California's community colleges are so strapped for cash they dropped thousands of classes last spring. The result: 54,000 fewer students.
Collapsing Investments
Many families thought they had a surefire plan: Even if tuition kept skyrocketing, they had invested enough money along the way to meet the costs. Then a funny thing happened on the way to Wall Street. Those investments collapsed with the stock market. Among the losers last year: the wildly popular "529" plans -- federal tax-exempt college savings plans offered by individual states, which have attracted billions from families around the country. "We hear from many parents that what they had set aside declined in value so much that they now don't have enough to see their students through," says Penn State financial aid director Anna Griswold, who witnessed a 10 percent increase in loan applications last year. Even with a market that may be slowly recovering, it will take time, perhaps several years, for people to recoup their losses.Nadine Sayegh is among those who didn't have the luxury of waiting for her college nest egg to grow back. Her father had invested money toward her tuition, but a large chunk of it vanished when stocks went south. Nadine was then only partway through college. By graduation, she had taken out at least $10,000 in loans, and her mother had borrowed even more on her behalf. Now 22, Nadine is attending law school, having signed for yet more loans to pay for that. "There wasn't any way to do it differently," she says, "and I'm not happy about it. I've sat down and calculated how long it will take me to pay off everything. I'll be 35 years old." That's if she's very lucky: Nadine based her calculation on landing a job right out of law school that will pay her at least $120,000 a year.
The American Council on Education has its own calculation that shows how students are more and more dependent on loans. In just five years, from 1995 to 2000, the median loan debt at public institutions rose from $10,342 to $15,375. Most of this comes from federal loans, which Congress made more tempting in 1992 by expanding eligibility (home equity no longer counts against your assets) and raising loan limits (a dependent undergraduate can now borrow up to $23,000 from the federal government).
But students aren't stopping there. The College Board estimates that they also borrowed $4.5 billion from private lenders in the 2000-2001 academic year, up from $1.5 billion just five years earlier.
For lots of students, the worst of it isn't even the weight of those direct student loans. It's what they rack up on all those plastic cards in their wallets. As of two years ago, according to a study by lender Nellie Mae, more than eight out of ten undergrads had their own credit cards, with the typical student carrying four. That's no big surprise, given the in-your-face marketing by credit card companies, which set up tables on campus to entice students to sign up. Some colleges ban or restrict this hawking, but others give it a boost. You know those credit cards emblazoned with a school's picture or its logo? For sanctioning such a card -- a must-have for some students -- a college department or association gets payments from the issuer. Meanwhile, from freshman year to graduation, according to the Nellie Mae study, students triple the number of credit cards they own and double their debt on them. As of 2001, they were in the hole an average $2,327.
Soaring Credit Card Debt
Beth Foster's credit card debt was not much better -- $1,500 -- when she graduated last December from the University of Iowa. Her student loans, meanwhile, came to $18,000. Wanting to work for a nonprofit, she was prepared for money to be tight. But she hadn't factored in a terrible job market. Now, to stay afloat, she's working two jobs -- as a cashier at a Target department store and as an apartment cleaner. All together, she takes in about $800 a month, while paying out $600 for rent, utilities and food. What's left barely makes a dent in her debts. "I'm scared out of my mind," says Foster.She's not the only cash-strapped graduate who's freaking out. Rich Call sees them all the time. As regional vice president for Consumer Credit Counseling Service of the Midwest Inc., Call has witnessed a big switch from a decade ago: His agency is now swamped with recent graduates deeply in hock. What he can do is help them restructure credit card debt. What he can't do anything about are student loans.
If the debt is too far gone, the wisest person to visit may be someone like Jeffrey Freedman. A bankruptcy attorney in Buffalo, N.Y., Freedman says his firm never saw students come through the door a few years ago. "Now, five percent of our clients are college students," he says.
There's plenty of business to go around. According to Harvard's Elizabeth Warren, about 100,000 young people under age 25 declared bankruptcy last year. "A student will graduate believing she can make her debt payments," says Warren. "But she will fall further and further behind, borrow more money on credit cards and finally realize that she has no possible chance of catching up. Those are the people we see in bankruptcy."
Camille Holt, 22, actually filed for Chapter 7 bankruptcy several weeks before she graduated last spring from the University of North Carolina -- ironically, with an economics degree. She was loaded down with about $25,000 in student loans, and nearly $20,000 in credit card debt from clothes, books, food and trips home while in school. Chapter 7 won't wipe clean the student loan debt, but it clears away all the rest. "Before, I worried all the time about my loans," says Holt, who works in a bank's trust division. Her Chapter 7 filing "has been like a sigh of relief."
Still, she may discover her diploma cost her even more than she thinks. For the next ten years, Holt's bankruptcy will be a visible part of her financial history. It could well come back to haunt her when she applies for a mortgage or car loan.
In a few tragic cases, the pressure of debt has overwhelmed students before they could see a way out. Sean Moyer was given a full scholarship to attend the University of Texas at Dallas. Soon after his arrival, he was being offered something else: his first credit card from an on-campus vendor. Before long he had signed for another card, and another. Eventually, Moyer was juggling 12 credit cards and owed about $13,000. Trapped by the debt, he moved back home in his junior year, enrolled at the University of Oklahoma, and hoped to figure out how to make ends meet. Moyer wound up taking on two jobs -- one at the college library and another manning the night desk at a Holiday Inn. Even those two paychecks weren't enough.
A Wise Choice?
One day, Moyer sat down with his mother, Janne O'Donnell, to talk about his goal of going to law school. Don't count on it, O'Donnell told him. She couldn't afford the cost and Moyer doubted he could get a loan, given how much he owed already. "He said he felt like a failure," O'Donnell recalls. "He didn't know how he had gotten into such a mess."A week later, the 22-year-old hanged himself in his bedroom, where his mother found him. O'Donnell is convinced the money pressures caused his suicide. "Sean tried to pay his debts off," she says. "And he couldn't take it."
Trisha Johnson underwent an eerily similar tragedy. Her daughter, Mitzi Pool, was a freshman at the University of Central Oklahoma in 1997 when, like Sean Moyer, she loaded up on credit cards. One evening that fall, Pool called her mother, sobbing. She was $2,500 in debt and had just been laid off from her part-time job. "I told her, 'This weekend, we'll go through everything and figure out what to do,' " says Johnson. That was their last conversation. Hours later, Pool hanged herself in her dorm room. There was no note, but her pile of bills and her checkbook were spread out on her bed. "Credit card debt of $2,500 may not sound like much, but to an 18-year-old, it was a mountain," says Johnson.
To be sure, suicides are exceedingly rare. But despair is common -- and it sometimes leads students to rethink whether college was worth it. In fact, there are quite a few jobs that don't require a college degree, yet pay fairly well. On average, though, college graduates can expect to earn 80 percent more than those with only a high school diploma. Also, all but two of the 50 highest paying jobs (the exceptions being air traffic controllers and nuclear power reactor operators) require a four-year college degree. So foregoing a college education is often not a wise choice.
Merit Mikhail, who graduated last June from the University of California, Riverside, is glad she borrowed to get through school. But she left Riverside owing $20,000 in student loans and another $7,000 in credit card debt. Now in law school, Merit hopes to become a public-interest attorney, yet she may have to postpone that goal -- which bothers her. To handle her debt, she'll probably need to start with a more lucrative legal job.
Like so many other students, Mikhail took out her loans on a kind of blind faith that she could deal with the consequences. "You say to yourself, 'I have to go into debt to make it work, and whatever it takes later, I'll manage.' " Later has now arrived, and Mikhail is finding out the true cost of her college degree.
No Degree? Apply Here:
Four years of college may be your best ticket to a high-paying career, but these solid jobs don't require an undergraduate degree:
| Profession |  |
Median Annual Earnings |
| Air traffic controller |
|
$87,930 |
| Nuclear power reactor operator | |
60,180 |
| Dental hygienist* |
|
54,700 |
| Elevator installer/repairer | |
51,630 |
| Real estate broker |
|
51,380 |
| Commercial pilot (non-airline) | |
47,410 |
| Electrical power line installer/repairer |
|
47,210 |
| Locomotive engineer | |
46,540 |
| Telecom equipment installer/repairer* |
|
46,390 |
| Funeral director* | |
42,010 |
| Aircraft mechanic* |
|
41,990 |
| Brick mason | |
41,590 |
| Police officer |
|
40,970 |
| Electrician | |
40,770 |
| Flight attendant |
|
40,600 |
| Court reporter* | |
40,410 |
| Real estate appraiser* |
|
38,950 |
| *Requires associate’s degree or vocational diploma. |