College grad owes nearly $200,000 in loans

Kelli Space graduated from Northwestern, financed by Sallie Mae. She owes almost $200,000. Tuition there is $14,000 a quarter, or $38,000 for three quarters x 4 years, which totals $152,000. So she wasn’t a spendthrift, not at all. Now she has crippling debt for decades into the future.

Student loans are not dischargable by bankruptcy. Sallie Mae is a GSE (Government Sponsored Entity). The loans are guaranteed by the government and often financed by banks (who can’t lose, now can they?).

Three points:

  • Any college undergrad who lets a loan balance get that high is unclear on the concept of debt.
  • That loan balances are allowed to get this high by lending institutions is unconscionable.
  • College may soon be just for the already wealthy as no one else will be able to afford it.

I went to community colleges and public universities. My two year degree in computer programming started me on my career and I owed $5,000 when I graduated. I probably would not be able to afford such formerly low-cost schools today as even their tuitions have risen sharply. As for private universities at $40,000 a year, well, who can afford that.

  • My debt from late-life enrollment rounded out to about thirty-five k, and with regular payments made whenever I was in position to do so now with interest about double that.

    It’s the new sub-prime.

  • Sue

    I wonder how many foreign countries send their students here all expenses paid? Then those students return to their countries and are cheaper to hire

  • woody

    I have to disagree with part of this Bob. In “blaming the banks” for allowing a students loan debt to get so high, tell me, what is the alternative? Maybe setting limits on personal student loans beyond a certain cap? That would only prevent the student from continuing in their degree, effectively forcing them to drop out. If a college graduate with a degree can’t pay back a $200K loan, how would you expect a college drop out to pay a $50K or $100K loan? And at what point would you draw that line? What is it based on?

    When I went to college (almost two decades ago), I went to a private institution that cost about $20k/year (it’s now up to about $35k/year). The first couple years I had scholarships and grants, with a few minor (<$2k/year) loans. The last year or so many of those funds went away, and I wound up having to take larger loans to cover the difference. When I graduated I had close to $58K in student loans, but I also had a highly sought after degree in a booming field. I was able to pay my loans off in about six years, just in time to miss writing off the interest when Clinton signed that exemption into law. If the bank had turned me down for that last $8K because I hit some arbitrary cap, I would have probably had a rough time finding a job that paid well enough to pay back the loans. Yet alone to do so while trying to pay for night classes to finish my degree.

    I'm not disagreeing that students should be given clear education on loans, debt management, and the like. And yes, banksters (and schools) were clearly not educating students on the differences between loans, because it was a disadvantage to them to do so. (And that boarders on criminal conspiracy, IMHO.) Had this person known how loans actually work I'm betting she may have chosen other options. Like going to a local school for two years get an associates, taking summer courses at such schools, and/or not studying abroad. In the end though, it's up to the consumer to educate themselves about products they purchase or use. These aren't dumb people we're talking about here, these are college bound students. Simple compounding interest computation and annual financial reviews should be part of their skill set.

    Bottom line: Do your homework before getting any loan, or investing in any savings device. Blindly signing paperwork to borrow because you want to go to school is about the dumbest thing you can do. But limiting access to loans simply based on an arbitrary cap seems just as dumb, and in many ways counterproductive.

    • I agree with what you say.

      My real point about huge student loan balances, is that it seems like subprime lenders who knew Fannie and Freddie would guarantee the mortgages. There’s nothing to stop them from making deliberately reckless loans. They have no skin in the game.

    • DJ

      My university cut my grants in my senior year and suggested I get loans instead. (Why remains a mystery, as I had a 3.96 GPA.) I refused, and asked my professors for help. One of them directed me to a scholarship that filled the gap, and I emerged from school with a degree and a manageable amount of debt. But not all are so lucky.

      OTOH, in their first class every Freshman found on his or her desk an application for a student Visa card. Indoctrination into the world of debt starts on the first day of school.

      It benefits the banks to loan money to students. It benefits the colleges to have money loaned to students. And the student, who has been conditioned to believe he or she cannot succeed without a degree (not true by the way), will do whatever it takes to get that piece of paper. I recently asked a young friend of mine how much he has accumulated in debt as he enters his 4th semester. He has no idea.

      Sure students should take more responsibility. But we forget that students are by definition seeking to learn from others who are supposed to guide them in a productive direction. When schools and banks and the government all say that loans are necessary and good, why are we surprised that students accumulate so much debt? Our economy as currently structured needs debt to survive– it can only thrive if we all spend more money than we have. And the university is a great place to program us to do just that.

      As Steppenwolf put it so well, “God damn the pusher man.”

  • Sue

    Kelli graduated with a degree in sociology, and is now working as an office manager (a field unrelated to sociology and not requiring a college degree).

    She describes her pay as “entry level.” According to the Bureau of Labor Statistics, median salary for her type of position is $22.55 per hour, $46,910 per year. Bottom quartile (probably “entry level”) is less than $17.44 per hour, $36,270 per year.

    Let’s assume she makes $36,270 per year. She works in NYC and lives at home in New Jersey with her parents.

    After taxes — individual, filing separately, no dependents (mentioned in the news), the regular standard deduction (presumably) — she takes home about $541 per week. It looks like this:

    $697.50 Gross pay per week ($36,270 / 52 weeks)
    – 72.44 Federal income tax withholding
    – 43.25 Social security tax
    – 10.11 Medicare tax
    – 29.64 New York state income tax withholding (~ same if NJ)
    =541.46 Net pay per week.
    x 52 weeks
    / 12 months
    =$2,346.33 net pay per month

    This does not consider any amount that is deducted for her share of premiums for medical insurance & state disability insurance. Quite likely she’s paying around $200 per month for that.

    = $2,146.33 net pay per month after medical insurance & SDI

    Commuting costs, NJ to NYC… about $90 per month

    = $2,056.33 net pay per month after med/sdi & commuting

    She pays $891 for student debt now … in late 2011, her payments soar to $1,600 per month. After taxes, insurances, debt, and commuting, she’s currently got weekly income of $269 (($2,056-891)*12/52) … in late 2011, she’ll have weekly income of $105 (($2,056-1,600)*12/52). To cover *everything* else. $105 a week!

    She didn’t get a degree in medicine, or a “hot” field … she took on overwhelming debt … she was very, very badly advised about her prospects. Her life has been mortgaged, and she is truly a debt slave.

    • And student loans can not be discharged by bankruptcy either.

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