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Drowning
in Student Loan Debt
Tutition
prices and student loans are on the rise
affecting
college students at Indiana University
By
Jessica McDonald
J201
Reporter
As
31-year old Joe Link, associate instructor in the IU school
of Education, sits across the desk from a local car salesman
he is quickly informed that his debt-to-income ratio is too
high to even consider the purchase of a new car. His accumulated
$100,000 in student loan debt consumes his power to invest
in anything else but his loans.
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Photo
by Jessica McDonald |
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Joe Link, an associate instructor for a history class through
the school of education, gets some work done at his desk
in the school of education at Indiana University. |
I
probably won't be able to afford a new car until I'm well
over 40, he said.
According
to a recent survey by Nellie Mae, the largest nonprofit
provider of student loans in the country,
undergraduate student loan debt is increasing. The average
undergraduate debt is $18,900, up 66 percent from $11,400
in 1997.
The
amount of loans borrowed in the United States increases every
year. The Department of Education recorded from 1989-1996
the dollar amount in federal student loans doubled, increasing
from an average $13 billion per year to about $28 billion
per year and climbing. For the 2004-2005 school year the Department
of Education will provide an estimated $67 billion in aid
for students.
For
the current academic year there is a significant peak in prices.
According to Penelope Wang of Money
Magazine, college tuition prices for the 2004-2005 school
year increased 7.8 percent to $11,354 per year, at public
universities, and 5.6 percent to $27,516 per year, at private
institutions.
These
growing tuition prices affect IU students as well. The IU
office of Student Financial Assistance recorded that, among
freshman, there was an increase in loan amount from $3,740
to $4,107 per year, for sophomores a leap from $7,742 to $7,904
per year, juniors had an increase from $12,470 to $12,656
per year and seniors accumulated aid jumped from $18,514 to
$19,377 per year during the 2003-2004 academic year.
 Graphic
by Jessica McDonald |
According
to Indiana University Financial Aid Counselor John Bodnar,
the biggest problem that students have is not meeting academic
requirements. Not meeting the academic requirements causes
students to take out more loans
because
their inadequate grades keep them in school longer, increasing
their loan amount.
When
students accept the commitment to repay their loans they have
unrealistic expectations of their future earning potential.
This leads to the conclusion that their future income will
support their monthly student loan payments. A recent study
made by PIRG, an Indiana State Public Interest Research Group,
found that a bachelor's degree recipient can expect to make
$27,000 and $29,000 in their first years out of school. A
graduate with a debt load of $17,350, slightly above the national
average, would need to make $50,735 annually in order to pay
the cost of their monthly charges.
Link
expects his starting salary to be around $45,000 per year,
which makes it harder for him to comfortably pay off his loans
in less than a 30-year period. After a recent consolidation
from an 8% interest rate, Link locked a rate of 3% so his
monthly payments will be around $422.00 per month after he
receives his PhD in education. Link said it would be more
practical for him to be a lawyer with the amount of debt he
has accrued.
If
students go to law school and borrow $100,000, they can easily
work to pay it off, whereas if they get a PhD in education
their earning power is not going to be that high, he said.
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Photo
courtesy of Joe Link |
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Joe Link and his girlfriend Maria Werle
on vacation in Chicago. Link and Werele are forced to
go on budge vacations because of Link's student loan debt. |
Link
is limited in his personal life due to his loans. When he
starts dating a new girl, he makes sure to inform them of
his financial situation. Maria Werle, Link's current girlfriend
and personal friend of 12 years is affected by his debt.
We
don't go shopping and we don't eat out at expensive restaurants,
the most expensive restaurant we go to is Denny's, Werle
said .
Werle
and Link like to travel, but have to accommodate for their
limited finances. While traveling, they always drive instead
of flying and they usually stay at a Motel 6.
Before
students start thinking about their future incomes they consult
Sallie Mae for their loan borrowing needs. Sallie Mae Corporation
is the nation's No. 1 government agency that helps students
pay for college. Sabrina Sanders, a Sallie Mae Customer Service
Representative, aids thousands of students with their loan
applications each year.
I
take the students' requested loan amount through the loan
borrowing process, and after they are approved, we process
their loans by contacting their school, Sanders said.
When
a student applies for a loan they speak with a customer service
representative, like Sanders. Unless students calculate their
borrowed amount and compare it to their expected future income,
they will not know what their payments will be after graduation.
It is up to the student to seek out this information on their
own. By not planning for the future, they are risking the
possibility of unmanageable debt after graduation.
Link
wishes he had taken more time to research the future of his
loans when he first started borrowing at age 20.
When
I first borrowed from Sallie Mae, they didn't tell me what
my monthly payments would be, he said.
Now
at 31, Link is still apprehensive about the borrowing process.
I
don't know the banks that I borrow from very well, the lending
process is very impersonal, he said. All he knows is that
the money he borrowed needs to be repaid.
 Graphic
by Jessica McDonald |
The
American Council on Education reported a bachelor's degree
recipient attending a public four-year university borrowed
an estimated $15,375 per year. After students graduate and
move on to their careers they have other finances aside from
just student loan debt. A car payment, rent and bills can
throw a student off their financial course.
Since
she was 23, Kimberly James, an IU School of Music Doctoral
Student, has been borrowing money to cover her bills and academic
expenses. Now 32, she regularly flips through her stack of
monthly bills and gets red-in-the-face frustrated when she
thinks about borrowing another loan to keep up with her expenses.
Over
the past nine years, James has borrowed enough money to receive
a bachelor's and master's degree. She said her educational
expenses were well worth it, but now she has to manage her
debt. She would like to buy a house, but many home loan lending
institutions won't consider her as a candidate because she
has too much debt.
I'm
embarrassed to say how much debt I have accumulated over the
years. All I can say is it's enough to own a nice house,
James said.
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Photo
courtesy of Kimberly James |
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Kimberly James and her
baby girl at a local resturant in Bloomington, IN. |
Within
the next year she will be receiving her doctoral degree and
her student loan payments, which will start around $1400.00
a month.
Students
who feel they cannot make ends meet have the option to consult
a debt counseling service. One of the most common nationwide
debt organizations is InCharge debt solutions. InCharge is
a leading financial debt organization offering professional
credit counseling, debt management, and financial awareness
programs to individuals all over the country.
Marlin
Jeangilles, a debt counselor with InCharge helps people find
a way to manage their debt.
I
counsel them on their budget and help them reduce their monthly
interest rates, Jeangilles said.
To
help students prevent future debt, she said students should
keep themselves informed and involved in their financial decisions.
When students find themselves owing a significant amount of
money, they have to limit their lifestyles in order to accommodate
their financial debt.
Link
has come to the realization that he has more than $100,000
in debt. He concluded to simplify his life by cutting out
cable and Internet access in his home. He also reduced eating
out at restaurants. He turns to his credit cards when he can't
afford expenses on his doctoral salary of $14,000 per year.
Link
would like to have a family someday but has to plan around
his debt.
I have to be careful about having children, because they
are expensive and I don't think I'll be able to buy a house
until I'm well over 40, Link said.
For
Further Information:
National
Center for Education Statistics
IU
Student Aid Information
Designed and
edited by Rachel Ziemba
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