College Loan Slavery: Student Debt Is Getting Way Out of Hand

AlterNet is resurfacing the best and most popular articles from 2008. This article by Nan Mooney on college loans was first published in November.

Raya Golden thought she was handling college in a responsible way. She didn't apply until she felt ready to dedicate herself to her studies. She spread her schooling across five years so she could work part-time throughout. She checked that her school, the Academy of Art University in San Francisco, had a high post-graduate employment rate. But there were two things she hadn't counted on. The first was the $75,000 in nonsubsidized federal student loans she'd have to take out for tuition and those living expenses her part-time jobs selling hotdogs and making lattes couldn't cover. The second was that she'd graduate into a workforce teetering on the edge of the biggest financial crisis since the Great Depression.

"All of a sudden the work just dried up," says Golden, who got her degree in traditional illustration. "I've sent out probably a hundred resumes from L.A. to Canada, but I haven't had a single response. Experienced people are getting laid off, so why would anyone take a chance on a college grad?"

Shortly after graduating this past January, Golden moved from San Francisco to Los Angeles hoping there would be more work available, only to find hiring freezes at most of the production studios and animation houses. She has looked into fields ranging from children's book publishing to T-shirt design, but no one is hiring. For now, she's doing her best to get by working part-time as a barista at Starbucks and sleeping on a friend's couch.

Golden has taken a three-month hardship deference on her student loans but is well aware that the longer she pushes off payments, the higher the interest will climb. She had hoped to consolidate her loans, which are now at $112,000, but every place she called either no longer handles consolidations or turned down Golden because she was not employed full-time. Since there's no way Golden could possibly make her $1,400-a-month payments on a part-time barista's salary, she brokered a temporarily reduced payment of $650.

"It doesn't even cover the interest," says Golden, "If I pay that for two years I'll wind up owing $150,000. But I can't see that I have any other choice."

As for her career future, Golden admits things look bleak.

"I'll probably have to go back to school to learn computer illustration," she says, acknowledging that this means racking up even more debt with still no guarantee of a job. She is wary given that so far, despite her work ethic and excellent grades, the higher education path hasn't paid off at all.

"My timing couldn't have been worse," she says, voice brimming with frustration. "I'm doing the exact same thing I was doing before I went to school, only now I have all this debt to carry around, too."

The economy these days looks frightening for just about everyone. Who would want to be a retiree with little to no earning potential, or a young family grappling with mortgage and child care payments while facing the possibility, or reality, of job loss? But imagine trying to enter the labor force right now, making career choices that could affect your entire earning future. How are college graduates supposed to juggle student loan payments with the realities of an imploding job market and family members too caught up in their own financial turmoil to help out? With all the attention focused on failing banks and government bailouts, the very legitimate panic felt by such graduates risks getting lost in the shuffle.

"Most of the recent graduates I hear from are petrified," says Alan Collinge, founder of Student Loan Justice, an organization that fights for student loan reform, and author of an upcoming book about the student loan industry. "They have yet to find real jobs in their field, so they're out there slinging hash to make ends meet. And then their loan payments come due."

Graduates like Golden are right to feel petrified. According to a recent College Board report, about 60 percent of 2007 college graduates had student debt, each taking out an average of $22,700 in loans. Graduates are expected to begin repaying within six months, healthy job market or no. Loans can be deferred, but never erased (unless you die or are permanently disabled). And when those payments do come due, many will face the prospect of paying back not only fixed-rate federal loans but also high-interest private loans. The private loan industry is now responsible for 24 percent of student lending. Before the economic crisis hit, it was the fastest-growing sector of the student loan industry. And though the $700 billion bailout bill includes provisions to enable the U.S. Treasury to buy troubled assets, including private loans, from student loan providers, it provides no relief for the students who have taken out such high-interest loans.

Collinge sees the proliferation of costly private loans and the abysmal job market as a potentially toxic mix, one that could result in a wave of bad loans echoing what has already happened in the housing industry.

"Attention needs to shift from welfare of the banks to welfare of the students," he offers. "Otherwise, I wouldn't be at all surprised to see a dramatic spike in the number of people defaulting on their private loans."

Private loans weigh heavily on Rebecca Gretzinger's financial future. When her $20,000 in government aid wouldn't stretch far enough, she took out $20,000 in private loans from Sallie Mae in order to complete her bachelor's degree. Since graduating two years ago, she has been paying $150 every six months to hold her private loans in forbearance. But come December she'll need to come up with $640 a month in total loan payments -- 40 percent of her monthly income.

"I'm in my mid-twenties, and I'm still living with my parents," she says. "I don't have any resources to fall back on. I am very concerned that my private loans will be put into default once I have to start paying them back. "

Gretzinger works at an insurance company call center, a job that doesn't require a college degree. It's neither well paid -- her salary is based on commission -- nor stable -- she was laid off in April and then rehired in October -- and Gretzinger holds out little hope that she will be able to support herself, and her debt, on what she makes. She has tried searching for better jobs near her family home in Green Bay, Wis., but despite her degree in business administration with a minor in marketing, no one is hiring.

"I don't know what my plans for the future are," she says. "But I realize now that I will never be able to have children or even a house of my own. I went to college to better myself but found myself much, much worse off then I ever could have imagined."

Gretzinger concedes that she's lucky to have a job at all, and she's right. The nation's underemployment rate -- which includes not only the unemployed but also part-time workers who want full-time jobs and jobless workers who want but are no longer seeking full-time employment -- reached 11 percent in September, its highest rate in 19 years. For recent graduates landing in a job market that already contains more than 17 million underemployed, the prospects are indeed depressing.

For those unable to find adequately paying jobs, and there will be plenty, the consequences of defaulting on student loans can be life-altering, ranging from ruined credit reports to garnished wages to liens placed against property and bank accounts. Not even declaring bankruptcy can hold them exempt. In these dicey economic times, an inability to pay could deliver a crippling blow to young people who have barely had a chance to get their feet wet in the working world. Such realities only add to the disillusion many like Golden and Gretzinger are experiencing regarding the nation's investment in their educations and their futures.

"I no longer believe that my job is safe, and there are very few other jobs out there," Gretzinger says. "The rescue plan may help the banks, but it's not going to help me. I believe that it will take years to get this country back on its feet."

It seems all a graduate can do these days is hang on and hope the new administration brings about some kind of economic change that will work in their favor. But for many, hope feels like a pretty tenuous thing.

"I feel like I'm on the Titanic," says Golden. "Who got out first? The rich people. Everyone else was just left to drown."

For years, young people have been banking on the message that acquiring job skills and an education will pave the way to financial security. Instead, for many, the quest for a college degree has only dumped them even deeper into the financial pit. For a country depending on coming generations to get us out of the economic mess we currently find ourselves in, such lack of faith in a brighter future truly is a petrifying prospect.