Today I was looking over my student loan account online and I got a real bad feeling in my stomach. Currently I am in deferment but soon (in March to be exact) I will be paying Sallie Mae for my student loans. I must admit if I knew then what I knew now I would have tried harder to get scholarships or I would have worked my way through school, because I owe some major dough and I really do not want to pay. I know it is wrong but when I was borrowing the money I never kept track I what I really owed and how it could affect my financial future. To be honest at the ripe old age of 18 I thought I had the world at my feet and borrowing money to secure my future was in my best interest. My friends and I was fed a constant diet of “Go to college so you can earn some good money.” We were made to feel that simply by going to college would guarantee that we would be set for life and we will be able to choose the positions we wanted. As a matter of fact, I was under the illusion that jobs would be fighting over me, vying for my time and my mind. All the college professors and staff made us kids feel like our futures were so bright and that opportunities were abundant. I believed it all and thought, I want to have major cash so better up the antae and get a masters degree. I happily spent 6 years straight in school. I studied hard and dreamt of all the money I would be making when I graduated. The career center saw me often because I was constantly checking out who was hiring and what I should expect. Finally, I walked across the stage with my master’s degree. What a feeling I felt like I was on top of the world. I had obtained a decent job and could not wait to take on Corporate America. Then one day a letter from MOHELA came in the mail and it was a statement concerning my student loans and the expected payment. I read the letter and saw the total cost of my education (six-figures) and damn near fainted. All of the sudden I started pulling out old financial aid papers and adding figures up in my head. I was on the verge of tears, I felt like I had been scammed. How could I possibly owe this much money, and how did these people think I was going to pay $ 500.00 a month for the next 25- 30 years. I called MOHELA and they said we will place you into deferment. Whew, I could happily pretend that I never owed the money, or so I thought. My mind was constantly plagued with the thought of owing this large amount of money. While I made good money I hated my job and needed to quit because I was consistently unhappy. After much thought and consideration I decided to quit my job believing that my education would ensure that I would get another good job as a matter of fact I looked forwarded to getting a better job. After months and months of searching I was unable to find another great job. I was so frustrated because everyone promised that an education would lead to big money and a bright future. Here I was unemployed and could not find a job and I had invested a great deal of time and money into school. Watching daytime television left me pissed off because all of the ads for college, medical programs, and technical school. They all promised job placement and had testimonials about how going to school advanced people’s career and changed their standard of living. These schools were making false claims, they could not guarantee anything, yet they often made people feel like school is the way out of poverty. They forget to tell you about the debt you will incur and that you don’t always get the job you dream of. Many times graduates are so saddled by debt and a lack of a good paying job they can’t afford to pay back their student loans. In fact, two-thirds of graduating seniors at four-year universities now carry student loan debt, according to the Project on Student Debt's June 2006 report. And, with tuitions soaring well above inflation, average debt has increased by more than 50 percent, leaving a typical college graduate with $23,600 in student loan debt and $2,000 in credit card debt, according to a September 2006 report by the Campaign for America's Future. Additionally, Congress cut $12 billion from the student loan program in 2005, which many felt could have been used to keep interest rates low. The rise in unmanageable debt has raised concerns that many graduates won't be able to pursue careers in fields that have traditionally paid modest salaries. Nearly a quarter of four-year public-school graduates and 38% of private-school graduates who become teachers can't afford to repay their debts on a starting teacher's salary, a recent report by the Public Interest Research Group's Higher Education Project found.
Other factors contributing to a rise in loan balances include:
•Shrinking federal aid. College costs have risen by more than 50% since 1990, but federal aid hasn't kept up. Congress hasn't increased the Pell Grant, the most common form of direct aid for low-income students, since 2003. (The maximum Pell Grant is $4,050 a year.)
Both low- and middle-income families have been squeezed,
•An increase in private loans. Federal Stafford loans let students borrow using federally backed loans with favorable interest rates and repayment terms. Unsubsidized Stafford loans are available to all students, even if they don't qualify for financial aid.
But there are limits to how much undergraduates can borrow. This year, the total in Stafford loans that a freshman can borrow is $2,625; for sophomores, the cutoff is $3,500. There are also limits on the amount of Stafford loans that graduate students can borrow. In 2004-05, private-loan borrowing rose by about 30%, according to the Project on Student Debt.
As a result, many students who attend private or out-of-state schools or pursue a graduate degree often must supplement their Stafford loans with more costly private loans. These loans lack some of the advantages of federally backed loans — such as provisions that let borrowers defer payments — and are costlier,
Starting July 1, new Stafford loans will carry a fixed rate of 6.8%, up from the current rate of 5.3% for loans in repayment. That's a big jump, but borrowers who consolidate their federal loans before July 1 can lock in the lower rate for the life of the loan.
That's not an option for most private-loan borrowers. Interest on those loans is variable and linked to market rates. The rates on Weinberg's private loans range from 7.5% to 8.2%. "I'm really scared of even another half-a-percent increase," she says.
•Pressure for advanced degrees. When Rachelle Routsong, 24, graduated from Brigham Young University with a bachelor's degree in health sciences, the only relevant jobs she could find were administrative positions in doctors' offices and community health centers.
The pay was low, and "it was just a lot of paperwork," she says. "I didn't enjoy it."
Routsong decided to return to school to get her master's degree as a nurse practitioner. She looked into nursing programs at several community colleges. All had two- to three-year waiting lists. She entered an accelerated program at the University of San Diego, a private school, that will enable her to get a master's in three years. She's borrowed $65,000 and expects her loans to top $165,000 by the time she graduates.
Her student debt, she says, occupies a place in the recesses of her mind.
"I want to get married, and I want to have a family. What if I want to have a child and take time off while he's an infant? Will I be able to do that with all this debt that I need to make payments on?"
Law and medical students, who can usually expect lucrative careers, have traditionally borrowed to pay for their schooling. But more than 54% of education doctoral students — who generally don't expect high-paying jobs — also borrowed in 2004, according to the Project on Student Debt. These borrowers are primarily future teachers, principals and administrators. Their average loan balance: $43,029.
Long-term value?
One of the consequences of escalating loan balances is that today's graduates will spend a lot more time repaying their debts than earlier graduates did
While a Stafford loan has a standard 10-year repayment period, borrowers with large balances can extend their payments for up to 30 years. There's a good chance, he says, that today's borrowers with above-average student-loan balances will still be repaying their loans by the time their own children start college.
The problem for borrowers with heavy debts is that the loan payments arise long before the higher salaries do, says Luke Swarthout of the Higher Education Project. Most graduates are expected to start repaying their loans soon after they leave school. Besides earning modest starting salaries, they often have to shoulder the costs of moving to an expensive new city. "
Later this week I will discuss the "business of student loans"
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