Students Go for Broke
College students these days are graduating with far higher debts than ever before, even though the salaries on which they are expected to live have risen only slightly in recent years. There are many factors: reduced funding for grants and scholarships, higher tuition and living expenses, banks pushing easily available student loans and credit cards, stagnant wages for increasingly scarce part-time jobs. High debt loads can be a recipe for long-term financial disaster in a society in which periodic economic downturnsÑand the resulting job losses and salary reductionsÑare just part of free market life. Already, even with todayÕs relatively prosperous economy, the dilemma is manifesting itself in an astounding number of bankruptcy filings, including more than ever by young people. In San Luis Obispo and Northern Santa Barbara counties, bankruptcy filing have gone from 75 to 200 per month in just the last two years. "IÕm always astounded when I see someone 18, 19, or 20 years old going into bankruptcy court," said David Farmer, a bankruptcy attorney who also serves as this areaÕs court-appointed bankruptcy estate trustee. And it is the college students, those young people who canÕt devote themselves to working full time, that are taking on the most debt.JackieÕs Story Jackie BuhleÕs story shows just how fast debt can get away from students. "I got behind and just couldnÕt catch up," said this 25-year-old nutritional science major. "Now I feel trapped." In 1993, Buhle was working as a medical assistant in Santa Rosa, but she decided to go to college at Cal Poly. She found a good job in San Luis Obispo, making $12 per hour with UPS before she was laid off. "IÕve always really budgeted myself and was on time with all my payments," she said. Buhle managed to find a $7 per hour job as a medical assistant, but soon her workload at Cal Poly demanded more daytime hours than the job would permit, so she quit to focus on getting through school. "I didnÕt have a job for six months, so I started living off my credit cards," she said. "And after awhile, I just stopped looking at the statements." Buhle knew she was going in debt, but thought getting through school was more important. "I was thinking there would be a job out there for me and IÕll pay it off later," she recalls. "And besides, I thought, everybody does it." For a starving college student, the offer of thousands of dollars in instant cash from a credit card company is almost irresistible. "It was like, ÔOh, good, I can go grocery shopping nowÕ," Buhle recalls. Soon, Buhle was $15,000 in debt and her three credit cards were all maxed. ThatÕs when she knew that dealing with her debt was something that couldnÕt wait until after graduations. She now has a full-time job at Uptown Espresso, no more credit cards, and a repayment plan set up through Financial Fitness Center that calls for $300 per month in debt service and will get her out of the red in about five years. "I just think of all the other things I could be buying with that money," Buhle said.Charging College The average Cal Poly student who took financial aid is now graduating with $14,084 in student loan debt alone, and most probably also have well-used credit cards that are so easily obtained on campus. That loan debt figure increased more than 10 percent in the last year, and almost 9 percent the year before that. On the longest repayment plan, 10 years, that $14,000 student loan debt translates into monthly payments of almost $200. And thatÕs just the average. Meanwhile, Cal PolyÕs latest survey of recent college graduates lists a median monthly salary of $2,600, up just 4 percent from the previous year. Even that figure includes about as many nutritional science and agricultural science graduates respectively making $1,300 and $1,500 per month as it does computer science and industrial technology majors, each pulling down $3500 each month. Yet all four degrees cost the students about the same thing. At Cuesta College, the average student who took loans left the institution $7,100 in debt. The school loaned out $1.49 million last year. Unfortunately, there are no reliable figures available outlining how much credit card debt students are racking up, although anecdotal evidence indicates that it is high. People who amassed huge credit card debts as students make up most of Gabrielle HoffstetterÕs clients. She works for the non-profit Financial Fitness Centers out of Arroyo Grande, helping clients like Buhle set up debt repayment plans and negotiating with creditors to lower their interest and principal. "ItÕs mostly credit card debt, because they canÕt afford to live here on the grants and loans they get," Hoffstetter said. Students and recent college graduates coming to her with $20,000 in credit card debt is common, Hoffstetter said. People need to take responsibility for themselves, she said, but the banks make it just too easy for desperate young people to be financial irresponsible. "The credit card companies hold most of the responsibility," Hoffstetter said. "They know what theyÕre doing. TheyÕre trying to keep us in debt for the rest of our lives."Pick a Card Banks make billions of dollars off the credit cards they give to students, even taking into account bankruptcies. Some Cal Poly entities also profit from how easily credit cards are being made available to students. El Corral Bookstore sponsors the credit card tables of American Express and Citibank, each of which come on campus several times a year. Citibank pays the bookstore a fee for each day they are on campus, while American Express pays the bookstore a fee for each approved credit card application. All the credit card companies want to be on campus. "We could have credit card companies on campus every day of the years if we wanted," said Theresa Kaiser, the bookstoreÕs marketing coordinator, "but we just donÕt think that would be appropriate." Expanding on her comment, Kaiser said making available to students the good deals offered by credit card companies is fine, but making such deals too readily available can create financial problems for careless students. MBNA, one of the countryÕs largest Visa card issuers, gets its permission to come on campus from the Alumni Association, which actually gets paid a percentage of the purchases made on the cards issued to students. Bank of America and Wells Fargo are each allowed to set up credit card tables on campus essentially as often as they want as part of their lease agreement for their ATM machines. On a recent weekday, 21-year-old Phung Bui was working a table set up between the ATM machines, luring students to fill out Bank of America Visa and Master Card applications with free picnic sets, drinks, microwave popcorn, and entries in a million-dollar drawing. "ItÕs easier for students to get approved than with the regular credit cards," Bui says. The interest rate is also higher for students, nearly 20 percent. Most students will receive an $800 credit limit, although that limit can easily be bumped up after a few months of regular use and payments. "ItÕs a good way for students to start getting credit without going overboard," she said. Bui said Bank of America gets most of its credit card applications in the fall when the new students arrive, hungry for fun, although even in spring she gets about five credit card applications each day. "After awhile, the market gets saturated and students have all the bank cards they need," said Bui, who has a sales quota of five approved credit card applications per week. Upon graduation, students are again targeted by credit card companies with offers of low interest credit cards with limits of $10,000 and $20,000. "What is driving some of the younger bankruptcies is the deluge of credit card companies contacting graduates with pre-approved credit cards," said Farmer, the bankruptcy attorney and trustee.BennyÕs Story Benny (not his real name) is a 20-year-old agriculture major at Cal Poly now considering filing for bankruptcy to deal with a credit card debt of more than $20,000. He spoke to New Times on condition of anonymity. When he was 16 years old, Benny got his first credit card by having his parents co-sign for it. He would use the card and pay his bills, so when he turned 18, the credit card companies were beating down his door. "They just started sending me credit cards, even gold cards" Benny said. He came to Cal Poly almost two years ago with a $25,000 credit line among several cards, and he ended up living on that credit line. "I was hoping to get a job, but school conflicted with that," Benny said. "So I just thought IÕd try to hurry through school and get a job." But a couple months ago, reality came crashing down. The minimum payments on his cards totaled about $600. And with such steep minimum payments and huge finance charges, Benny knew that working down his $20,000 in principal was impossible. He contacted Hoffstetter at Financial Fitness Centers to find out about getting on a debt reduction program, but he says heÕs leaning toward just wiping out his mistake by declaring bankruptcy. "I think IÕll be able to get back on my feet faster if I just declare bankruptcy," he said. "I see it as a cheap way out." Despite helping him enter the world of credit cards, Benny said his parents no nothing of his debt problems, and he doesnÕt plan on telling them about the bankruptcy. "I donÕt want them to know because I feel bad about it," he said.Living on Loans Living on credit cards with their high interest is bad, but school officials see nothing wrong with living off student loans to get through college. "The least expensive way to get through school is to get through school," said Mary Ann Hinkle, who runs Cal PolyÕs student loan program and counsels students. "Taking a second job isnÕt usually advisable." Year-round Cal Poly students pay almost $3,000 just in tuition each year, with books and living expenses on top of that, so cash-strapped students are advised to get through as quickly as possible. "Students are forced into taking loans because school is expensive," Hinkle said. "Most of our students are going to borrow." In fact, the school is now allowing students to borrow year-round, thanks to a new policy change that allows Cal Poly students to collect grants and loans during summer quarter. The change was made to encourage more students to go to school year-round and graduate quicker. While tuition, living costs, and student populations have increased over the last five years, grant and scholarship assistance have remained stagnant, Financial Aid director John Anderson said, "with most of that growth being absorbed through the loan program." Legislation now working its way through Congress would increase the maximum Pell Grant allocations from $2,700 per year per student now up to $5,000. Its fate, tied to budget negotiations, is uncertain. Hinkle has been working in the Financial Aid office for 19 years. When she started, the department handled less than $1 million in loans. Now, Cal Poly students get more than $35 million per year in loans. Most of that money is repaid starting six months after students graduate. "We have a relatively low default rate here at Cal Poly," Anderson said. The most recent figures show that 5.1 percent of Cal Poly graduates in loan repayment mode will default on their loans each year, a figure that is less than half the national average. At Cuesta College, as with most community colleges, the default rate is a much higher 15 percent. ThatÕs because more Cuesta students will end up leaving college without the four-year degree they need to boost their income. As a result of the higher default rate, Cuesta students seeking aid are scrutinized carefully to make sure they are serious students who arenÕt likely to default, according to Robin Crawford, director of financial aid at Cuesta. Unlike credit card debt, filing bankruptcy does not wipe out student loan debt. Those defaulting on a student loan can be sued, have their wages attached, lose their credit rating, and be forever disqualified from receiving not just student loans, but grant money as well. Both Cal Poly and Cuesta students must meet with financial counselors to discuss their accumulating debt, and they are told to keep a balance between their debt and expected earnings after graduation. "We constantly remind students how much theyÕve borrowed and what their monthly payments will be," Hinkle said. "But itÕs very hard to make the students see reality. Most students believe they will get a good job after college and be able to pay off their debt."