tuition is high, debt is out of control and students are left footing a bill that’s bigger than ever

Long, long ago, in the time of top hats, handlebar mustaches and horse-drawn carriages, debt was a deplorable thing. Debtors were shamed, ridiculed and even thrown into prison. Not so today. Those who find their personal finances scrawled in red ink aren’t being whisked away to the state penitentiary or even mocked in the street because, well, everyone owes someone money. You, me, even that guy on the street with a fancy cell phone and very expensive shoes.

Debt levels are at an all time high—according to statistics compiled by the Jump$tart Coalition, a non-profit group that promotes personal financial literacy, revolving debt, mostly comprised of credit card debt, has skyrocketed from $54 billion in January 1980 to more than $780 billion in November 2004. And it’s only going to get worse. This fall, new federal regulations will take effect limiting who can declare personal bankruptcy. Credit card companies and banks will be able to wring as much money as they can from cash-strapped individuals, meaning more people will owe more money for a much longer time.

And though the faceless moneylenders at the big international banks aren’t telling you to go into debt, they’re definitely not encouraging fiscal responsibility. Want a new iPod? Put it on your credit card. Gas prices got you down? Luckily, you’ve been pre-approved for a Shell MasterCard that lets you earn frequent flier miles for every gallon you buy with your little plastic friend. Can’t afford a trip to the doctor or this month’s electric bill? Let Visa come to the rescue.

Debt is the new normal. So normal, in fact, that a typical student graduating from a public four-year college will need almost 10 years to pay off the cost of their education. Add in credit card or doctor bills and things get worse. Want to pay as you go? Forget about it. As the cost of both public and private colleges has more than doubled in the last decade, earning power has dropped and the amount of federal and institutional financial aid has declined drastically. At the same time, a bachelor’s degree, once a sure ticket to success and financial freedom, is now the minimum requirement for most jobs. Once most students graduate, the pressure’s on to find a decent paying gig so they don’t drop into the debt cycle forever. It’s not a matter of going from rags to riches anymore; it’s more like going from rags to Goodwill.

local costs
Hannah Sherrill was graduated from the University of New Hampshire in May. She left the university with a BS in wildlife management and about $2,000 in student loan debts. She’s got it fairly easy compared to most graduates. But earning $23,000 year at a teaching position this fall at the Storm King School, a boarding school in Hudson, N.Y., she’s unsure how she’s going to buy furniture for her new apartment.

“I have to buy all my furniture, and how do you do that, cover the (student) loans and pay gas prices right now?” she says. “I’m seriously in debt. I hadn’t had a credit card until my senior year … and now I have a $500 balance on the card … that I can’t pay off.”

Sherrill paid for portions of the total cost of her college education with federal loans, with her parents financing the rest. But now that she’s out of school, it’s not just Uncle Sam she’s worried about repaying.

”My parents are undergoing this huge financial burden and I’m trying to pay them back, kick back whatever money I can,” she says. “Yes, they put me through college, but that doesn’t mean I’m just standing there doing nothing and getting a free ride.”

With the burden of debt looming over her and a few odd jobs holding her over until the fall, Sherrill says she’s “been really broke” this summer. She worked as an outfitter guide, taking kids on camping and hiking trips. But the job, which lasted six weeks, only paid about $2,000, which Sherill had to use to keep her hiking equipment up to date, pay bills and occasionally go out with friends. At the end of the six weeks, she was still in the hole, she says.

One trap that Sherrill has avoided is massive credit card debt. She didn’t sign up for a credit card until her senior year. Previously, she lived “the fine line between being broke and having a little bit of money.”

“My parents really strongly discouraged it, and I said OK, I don’t need one, I would be broke when I was broke,” she says. But when there was a lapse between her paychecks and bill that had to be paid, she signed up for a card to make the payment.

“I was scared. I had a few friends who were just so in debt, and I didn’t know if I had the willpower not to spend,” she says. She paid the bill, but as she worked off the balance on her new card, “slowly it started to generate a little bit more (debt),” she says. While her credit card bill is relatively low at around $500, she has friends with balances in the $2,000 range.

Sherrill says she hopes to have her debt paid off within the next two years, but is prepared for it to take longer. As she contemplates buying furniture for her new apartment in Hudson, she wonders if she should buy a mattress outright or put it on layaway, or if she should focus on paying off her student loans or her credit card bills first. And if her 10-year-old Chevy Blazer should stop working, that’s another added expense she’ll have to deal with.

“These are all the things I have to start juggling,” she says.

Nationally, the average starting salary for college grads with a bachelor’s degree is about $30,000 a year. Though there’s no data compiled on the average starting salary for Seacoast grads, a June 2005 report by the state’s Economic and Labor Market Information Bureau shows that the average starting wage in the region is $8.70 an hour, or roughly $18,700 a year. For those with a little more experience, the average is $14.29 an hour, or about $29,000 a year. For students who want to stick around the Seacoast, that’s just barely enough to cover the average monthly rent for a one-bedroom apartment (roughly $700 a month) and still have money left over for utilities, food, gas, insurance and other monthly expenses, not counting student loan payments. With numbers like that, it’s easy to see why so many grads have a tough time getting by.

Andrew Sawyer, another recent UNH grad, has about $20,000 worth of loans to pay back. A communications major, Sawyer is currently looking for a job in law enforcement. In the meantime, he’s living at home with his parents in Epping and working as part of UNH campus security.

“I’m paying my own way somewhat,” he says. “Kind of transitioning into the real world.”

Though he won’t have to start making loan payments until November (most federal student loans offer a six-month grace period after graduation), Sawyer says he’s trying to save money and find a job that pays at least $40,000 a year, a difficult task in Sawyer’s chosen profession. According to the Economic and Labor Market Information Bureau, the entry-level salary for police patrol officers is roughly $24,000 a year.

“That would significantly help out the living situation and paying down loans, but in general, it’s not like I’m a business student where I’ll have a job where I could make more cash. I kind of knew going in that I wouldn’t be making money hand over foot,” he says.

He’s also avoided “the evil credit card” so far. “One of the things my parents and grandparents stressed is that’s kind of the road you don’t want to go down,” he says.

the cost of the investment
The numbers surrounding the cost of education and the debt burden facing students aren’t surprising, but they are staggering. According to the U.S. Census, in 2003, 64 percent of the country’s graduating high school seniors went directly to college. This fall, the Census Bureau projects 16.7 million students will be enrolled at colleges and universities, up from 12.1 million a 25 years ago. Those students are paying more than ever.

The average cost of in-state tuition and room and board at a four-year public college is $10,660 per year, more than double the amount a decade ago. If State University doesn’t cut it and you’ve got to have a name brand, expect to pay on average $31,000 for tuition and room and board at a four-year private school.

But how did it get this way? Isn’t college supposed to be affordable and accessible for everyone? Well, not really.

“Colleges and universities face the same types of inflationary pressures as other employers, but there are some differences,” says Mark Rubenstein, vice-president of student affairs at the University of New Hampshire.

While most businesses might shell out big bucks for raw materials, new equipment or a new location, colleges and universities are “human capital-intensive and location bound,” according to Rubenstein. Essentially, the prices of goods and services are in flux, but the cost of hiring and maintaining a staff of professors, custodians and other personnel will always go up, due to wage increases and rising health care costs.

Beyond the basic cost of running a college is the fact that public spending on higher education is down across the country. After the economy tanked in the late 1990s, state support for public higher education decreased, requiring most public schools to increase tuition. As tuitions increased, so did reliance on loans. Between 1992 and 2000, the percentage of students using loans to pay for college jumped from 49 percent to 63 percent.

“That is not to say that the trade-off was one-to-one and that higher education simply ‘shifted’ the costs from the states to the students,” says Rubenstein. “I think that most institutions took steps to cut costs first, but ultimately still needed to ask students to carry a larger share of the cost of their education.”

As those costs rose, the need among students for financial assistance also increased, which, says Rubenstein, forced colleges themselves to spend even more resources on need-based financial aid. During that same eight-year period, at public institutions the percentage of students receiving institutional aid went from 17 percent to 23 percent, with average aid amounts increasing $500, from $2,200 to $2,700. Meanwhile, institutional aid at private schools increased from $5,900 to $7,000. Though institutional aid increased some, it wasn’t enough to cover tuition increases, so more students went to the government or lenders like Sallie Mae to help pay for college.

“As ‘the price tag’ goes up, this can’t help but have both a practical effect and a psychological effect on students and their beliefs about the accessibility of higher education,” Rubenstein says.

“The true cost of loan debt is ultimately a function of a student’s ability to pay and this is a function of employment opportunities and salaries for college graduates.”

But as students continue to face rising tuitions and rely more heavily on loans to finance their education, is college an endeavor worth investing in?

While the answer is typically “yes,” according to Rubenstein, as costs increase “it might be harder and harder for students to make that decision, particularly those students coming from families where college has not been the norm.”

While college is a good long-term investment, the short-term costs are a killer. According to the U.S. Census, workers with advanced degrees (master’s degrees and Ph.D.’s) earn an average of $74,602 a year; comparatively, bachelor degree holders get $51,206 a year while those with only a high school diploma earn $27,915. While the numbers make it look worthwhile to get an advanced degree, factoring in the average debt burden presents a different picture. College graduates have on average between $20,000 and $30,000 to pay back; graduate students can look forward to paying back at least $40,000, depending on what kind of degree they’ve earned. Depending on the job you’ve trained for, that could be quite a commitment. According to the Census, the highest average starting salary offered to bachelor’s degree candidates was $55,987 in the petroleum engineering industry; the lowest was $28,098 for those working in social sciences, only slightly higher than a person with just a high school education.

the debt industry
As post-college debt has become more commonplace, a cottage industry led by those most familiar with the burdens of debt has formed to guide students through the maze of consolidating loans, locking in on interest rates and developing financial strategies.

Resources include Web sites like GenerationDebt.org, which co-creator Diana Lamphiere describes as an “information clearinghouse” for young adults struggling with debt problems. Lamphiere and friends Gerry Garcia and Liz Schwarz started the site in 2004 as a way to keep students updated on loan consolidation and refinancing regulations.

Lamphiere, an attorney, had over $100,000 in debt when she graduated from law school in 2001. When the time came to consolidate her loans and lock in a fixed interest rate, she did so, figuring that she could always refinance again when interest rates dropped. However, she didn’t realize that education loans could only be consolidated once, and she has since been stuck with an 8.25 percent rate; the current rate for those currently consolidating their loans is 5.3 percent.

“I think all of us realize that we borrow this money and we have a responsibility to pay it back,” she says. “But when the fact that your payment is going toward interest and the going interest rate is much lower than the interest that you’re paying, that seems fundamentally unfair.”

GenerationDebt.org tracks current legislation relating to student loans and federal aid, and also provides tips on how to manage loan payments. The site also has a message board where new and current students can talk about their financial difficulties.

“Most of the time, the reaction is ‘I thought I was the only one who had this problem,’” Lamphiere says of the posting. She also receives feedback on the site from representatives from student loan lenders who write in to say that not all loan companies are bad.

“We don’t try to attack,” she says, but sometimes it’s difficult because “it seems like huge companies like Sallie Mae are making money off students’ backs.”

The debt burden has wide-reaching effects, according to Lamphiere, influencing everything from career choice to future financial opportunities.

“Most people I know … are in the same boat,” she says. “They’d rather take public interest jobs … (but) you have to make X amount a month to make that loan payment every month. You’re in grad school and you’re idealistic and when you get out, you have this huge debt and you say, ‘That corporate job is what I have to do, at least for a while.’ And you kind of get sucked in.”

For those who pursue advanced degrees, that debt burden can extend well beyond their student years.
“People have written me, saying ‘We’ve always wanted to buy a house but we can’t,’” Lamphiere says. “People who are paying off their own loans who have their own kids, they’re worried about setting up a college fund. It hurts the future of students, not giving them flexibility about little things like interest rates.”

Like Lamphiere, Dan Thibeault knows all about debt.

Thibeault, 31, is one of the co-founders of Graduate Leverage, a Cambridge, Mass., company that provides loan consolidation and debt counseling services for students.

Graduate Leverage started as a partnership between Thibeault and three fellow students at Harvard Business School. During a class, Thibeault answered a professor’s question in the context of student loans; soon, students in the class were asking him about their debt situations.

“We saw what we believed was a … void in the marketplace. (Students) weren’t getting the information on debt management they probably deserved,” he says.

For Graduate Leverage’s four founding partners, debt is an issue “still near and dear to us,” Thibeault says. After graduating from Harvard Business School, Thibeault had $113,000 in loans to pay off. The combined debt of the four founders is over $500,000.

“We do counseling and presentations at schools and we can relate for sure, because we have debt still,” he says.

Part of the problem has been the decline in federal student loans and the increase in private, non-federally backed loans. Though tuition at public institutions increased 99 percent between 1969 and 2001, government appropriations per student at public colleges and universities increased only 3 percent. As more students enrolled in school and federal loans and grants were harder to come by, it was left to private loan providers to fill the void. These loans, offered by the likes of Sallie Mae and others, have higher interest rates and higher costs associated with them.

The average loan debt for UNH students has increased  $500 to $1,000 per year in the past several years, with the current figure at around $22,000 for four years of school. In 1995, the average debt burden of a UNH grad was about $14,000. Tuition at UNH is about $4,000 higher than the national average; however, Rubenstein notes that low interest rates have made the cost of carrying this debt easier than in the past. Interest rates are currently at about 5 percent. Comparatively, rates in 2000 were set between 6 and 7 percent, while in 1992 they were 8-10 percent, according to the National Center for Education Statistics.

According Thibeault, there’s presently about $12 billion in private student loans out there, up from $1 billion in 1995. He says current statistics project that number to grow to $40 billion in the next 10 years.
“The government’s getting less involved and people are more and more comfortable with debt, but we’re at a point in time where no one knows how stable this is,” he says.

As debt grows, it’s harder and harder to get out of the hole. Quick fixes like debt forgiveness programs are very selective and “few and far between,” Thibeault says. The bottom line is that people remain in debt for longer and longer stretches of time, especially those who earn advanced degrees. For example, Thibeault pointed out that under current debt forecasts, medical students who might have paid off their debt in five to eight years can expect to have another six or seven years of payments to look forward to because of lower salaries and the possibility of higher interest rates.

“A doctor who might have had all debt paid off when they were 39 is looking to not have debt paid off until they’re 46,” he says. 

And missing those monthly payments may have even more effects than accruing late charges and denting credit ratings. Thibeault says some companies are starting to do credit checks on prospective employees as a way to gauge responsibility. A late payment might just preclude you from the job you need to help make those payments.

Though Thibeault says that it’s tough to say whether the rising costs of college are preventing people from even going, he has seen people who have dropped out of school because they couldn’t afford to pay, even with loans.

“It seems like everybody’s naïve when it comes to financing. People still look at school as a big social benefit to society, as a rite of social passage,” he says. “You have some sort of benevolent individual dealing with you,” like a provost or a financial aid officer, and “a lot of people assume no matter what the debt is, I’m going to safe haven here, a non-profit institution that wants to get me through.”

Because of this view of school as a safe-haven from debt, students are under-prepared when they leave the confines of the academic world and are faced with heavy payments.

“The banks and schools don’t help by letting them defer everything,” Thibeault says. “Nothing’s internalized until you get out of there and realize you have an $850 monthly payment for the loans.”

One thing that almost everyone who’s had to deal with student loan debt agrees on is the need for more financial education earlier in students’ academic careers.

“I wish I’d taken an accounting class or a money management class (in college),” Sherrill says. “It’s like, how do I make all these payments with one huge check and not blow it all?”

The New Hampshire Jump$tart Coalition, a branch of the national Jump$tart Coalition, is one group advocating for increased personal financial literacy. Dan Hebert is president of Jump$tart’s New Hampshire office.

“First and foremost, we really advocate a strong savings mentality,” he says. “And that sort of goes counter to our current culture.”

According to data compiled by the nonprofit organization, personal savings as a percentage of income decreased from 7.5 percent in the 1980s to 2.3 percent in 2003, while more people have assumed more credit card debt just to get by.

“(Credit cards) are a fact of life today,” Hebert says. “There’s also that danger that you can get into trouble quickly. College students … they run into those risks. It’s a demographic that spends money, so of course credit card companies are going to offer them opportunities to get credit.”

Jump$tart’s long-term goal is to get personal finance classes as part of the required curriculum in New Hampshire high schools, according to Hebert. In the meantime, he says the group is training teachers on how to give lessons in personal finance to their students.

And, as hard as it may be to believe, Thibeault says, “a certain amount of debt is a good thing.” How, you might ask while clutching that “past-due” notice? While high levels of debt can be “suffocating,” a manageable amount of debt can give people the impetus to work harder and be more successful.

“It (gives) people incentive to achieve. It gives people a reason to tell themselves to get things done,” he says.

It’s an interesting argument, but for recent graduates like Epping’s Andrew Sawyer, making enough to be financially independent is more than enough motivation.

“My parents have said they’ll help me out in paying back my loans, but I want a job to support myself,” he says. “It’s gonna be pretty pricey to pay it back, but I guess it’s well worth it.”