The Perils of Student Loan Debt: What You Need to Know

For many college students, student loan debt is a hard reality that can linger for years. Here's how to plan for, and manage, paying for higher education.

Student loan debt

If all goes as planned, Jenna Frye of Royal Oak will have paid off her undergraduate student loan debt by May 2020 – a full 11 years after graduating from Central Michigan University. When that day comes, she intends to celebrate big.

“I will throw a party because there was a time I didn’t think I would ever pay off my loans,” Frye says.

Before the party begins though, Frye still has to pay off $22,000 more in student loan debt. As she has for the past few years, she intends to throw every tax return she receives at it while paying approximately $1,500 a month toward her balance.

A common scenario for students

While Frye graduated with $27,000 in student loan debt, she watched it approach $36,000 during the years she couldn’t afford to pay even the interest on it.

“I had so much anxiety,” she recalls. “I didn’t deal with it for a while. If I knew when I was first applying for financial aid what I know now, I would have borrowed less.”

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Frye’s is far from an uncommon story. According to the Federal Reserve, 44 million Americans collectively carry $1.5 trillion in student debt.

The average student loan debt for those who finished a bachelor’s degree in 2016 was just over $37,000. In 2017, 20 percent of those with education debt were behind on their payments – with those who did not complete their degree or who attended a for-profit institution more likely to struggle with loan repayment.

Experts cite the biggest culprit in the student loan crisis as the dramatic increase in the price of postsecondary education, which has grown at a disproportionate rate to that of American wages. While college is not the path for everyone, the Georgetown Center on Education and the Workforce anticipates that, by 2020, 65 percent of all U.S. jobs will require some postsecondary education.

The College Board reports that one year of college tuition costs an average of $34,170 for a private college and $9,970 for a public one.

It’s no surprise then that a recent USA Today poll revealed a majority of parents worry about college expenses more than any other aspect of their child going way to college.

Planning ahead for student loan debt

Val Meyers is an associate director in the office of financial aid at Michigan State University. She wishes that she could talk to parents about planning for college when their children were still in kindergarten.

“There are essentially three ways to pay for college: before your kids start through saving or purchasing a 529 plan, while they’re in school or after they’re out of school,” she says. “Usually, when parents are reaching out to me, their child is a year or less out from beginning college. At that point, the conversation is focused on paying for college while the student is in school or after he or she is out.”

Meyers counsels parents and students to, if possible, pay as much as they can while the student is in school.

“I urge parents that if they can even pay a little bit each month, their student will have to borrow that much less,” she notes.

It’s advice that she extends to the students themselves.

“Students can pay for some of their education while they go to school simply by working,” she says. “If they’re not taking classes in the summer, they can work even more.”

Scholarships and financial aid

An often-overlooked avenue for assistance with college funding? Scholarships.

“I advise students to do scholarship searches – and not just once,” Meyers says. “Every summer and every break, sit down and complete five to 10 scholarship applications. You have to submit a lot to get anything, but if you’re persistent, you can actually help avoid borrowing by applying for and receiving merit scholarships.”

Meyers says that most schools will have information on their website linking to vetted scholarship opportunities. She cites FastWeb and the College Board as two credible resources for beginning the scholarship search.

“There are thousands and thousands of opportunities out there,” she says. “Students create a profile indicating their interests, accomplishments, community service, etc.

“The computer will then match students with scholarships for which they might be eligible. Every dollar a student can bring in in scholarships, at most schools, is a dollar that they will not have to borrow.”

Cindy Hermsen is director of financial aid at Oakland University. She encourages all students to fill out the Free Application for Federal Student Aid, or FAFSA, to determine their financial aid eligibility.

“In many cases, students say they’re not going to fill out the FAFSA because they think they won’t qualify for anything anyway,” Hermsen says. “We don’t feel that is the case. While a student may not qualify for a Federal Pell Grant, which is for the lowest income brackets, there are still cases where there are other need-based financial aid programs available geared toward middle income families.”

She stresses the importance of students filling out the FAFSA early and accurately to understand what they are eligible for. Then they must discern what they really need.

Setting a student mentality

“We tell students to live like a student now, so they won’t have to later,” Meyers of MSU says. “College is not necessarily the time to buy a new car or join the most expensive gym. Lots of the things you need and want are already on campus.”

Hermsen concurs, noting that she regularly talks with students about the difference between needs and wants.

“I advise them to minimize their discretionary spending,” she says. “You don’t need to go to Starbucks every day.”

Meyers couldn’t agree more.

“If you can’t afford pizza on a Friday night, you don’t want to pay it for it out of your loan money,” she says. “You don’t have to borrow everything offered, and you need to be really thoughtful about what you need.

“Yes, you need to pay your rent. Yes, you need to eat something. It’s the difference between what you need to get by and what enables you to do the things you are here for, which is to learn.”

Honing in on different types of loans

Hermsen points out that typically, there are ways that parents or students can set up payment plans to spread out tuition payments during the year rather than taking a loan from the get-go.

When students do need to apply for a loan, Hermsen advises them to look at federal loans before any private loans.

“Federal loans have better terms when it comes to repayment and better interest rates,” she says.

There may, however, be times when supplementing federal loans with a private loan makes sense.

“Costs for college are going up,” Meyers says. “There are limits to what you can borrow from the federal government on both an annual and a lifetime basis. If students get to the point where they have borrowed everything they can from the federal government, what do they fill the gap with?”

One option is a parent loan – where the parent can borrow on his or her student’s behalf from the federal government. Those loans are not capped.

“Families need to consider, though, that aging parents are looking at their own retirement – and taking on a loan for their child’s education may not make the most financial sense,” she says. “That’s when you may want to look into a private student loan and do some market research.”

Thinking differently about college

Kara Bui, originally from Jenison, Michigan, is already thinking about her 15-year-old son’s college path and how best to approach it from a financial perspective as she reflects on the approximately $55,000 of student loan debt she accumulated between her undergraduate and graduate studies.

Because she came from a low-income family, she qualified for various scholarships, but she funded the bulk of her undergraduate education at the University of Michigan with student loans. She followed up her undergraduate studies with a master’s degree from the University of South Carolina in genetic counseling.

“When I was applying for graduate school, I was operating under the assumption that my education was an investment,” she says. “I thought, ‘Well I may be in mountains of debt right now, but in the future, it will all magically work out and be fine.'”

Bui says she spent her three years of graduate school living in near poverty. Upon graduation, she accepted a full-time position as a genetic counselor making $40,000 a year.

“In retrospect, I should have waited longer to go to graduate school until I was more financially stable,” she says.

Bui still has $20,000 left to pay on her student loan debt and is in no hurry to pay them off.

“The interest rate is so low compared to what we can make back on investments,” she explains.

When she reflects on the ROI of her education though, Bui is hard pressed to say she regrets it.

“I have my dream job,” she says. “That is the hard part. I absolutely love it. I couldn’t have my job unless I had gone to undergrad and graduate school. So I had to do what I did to have the dream job I’ve got.”

Still, Bui is leveraging her learnings when it comes to her three kids. She has already told her eldest son that he needs to find as many scholarships as he can. She’s also pressing him to consider what he may want to pursue for a career.

“If he doesn’t know what he wants to do, I’m not sure I’m willing to pay for him to go to college,” she says. “If he knows what he wants to be and college is the best choice for pursuing that, that’s one thing.

“If he’s still trying to explore what he wants to be, I would push him toward where he could get a full-ride scholarship if he can. Maybe it wouldn’t be to his first choice of school overall, but I am not sure that matters.”

Considering the costs and the career

Weighing the costs of college versus future career potential is something Meyers at MSU encourages all families to do.

“I passionately believe in education, but I realize my school is not for everybody,” she says. “Every financial aid officer understands that his or her institution is not the right answer for everyone. We do think finances are critical as part of your decision.”

To illustrate her point, she uses the example of MSU’s renowned packaging program.

“If you’re really passionate about packaging, maybe it’s worth coming to MSU because we have this great program,” she notes. “If you want to be a history major though, there may be a number of schools that might suit you. Maybe you don’t pick MSU if you can find one less expensive that suits you just as well.

“We certainly would never want people to make a decision based just on money. We are trying to enable folks to pick the right place for their students, and then hopefully we can help them pay for it.”

OU’s Hermsen encourages students to thoughtfully consider future career plans early on so they won’t need to change their degree program.

“Any time you change your degree program, you could add another year of school,” she notes. “And every time you add another year, that’s going to be another year of tuition and living expenses during a time period when you could be in your career making money.”

Getting yourself connected

Hermsen recommends students reach out to their school’s career advising office from early in their first year.

“Start connecting with career advising staff so you can explore your interests early,” she says. “Students need to try and have a plan to graduate in four years. That means attending full time in the fall and the winter and even picking up classes in the summer, perhaps.”

Some students are earning early college credit taking college level courses while still in high school.

“I’ve met students who come to us almost as sophomores,” says Meyers. “Ask your high school guidance counselor what the school offers in the way of early college. Any time you can cut back on the number of years you need to be in college, you’re cutting back on your debt.”

Students enrolled in the Early College Alliance at Eastern Michigan University attend high school on the EMU campus with the potential to earn up to 60 transferrable college credits by the time they graduate.

“Early colleges are a special kind of dual enrollment program where students earn significant amount of college credits, so it’s not just a class here or there,” explains Ellen Fischer, Ph.D., principal at ECA.

Close to 450 students are enrolled at ECA and earning college credits at no extra cost. The ECA is funded through a percentage of each of Washtenaw County’s districts’ foundation allowance and other public and private sources.

“There are a lot of clever ways to get early college credit,” Fischer says.

Meyers at MSU points to community college and online classes as additional, often more affordable, ways to pursue some credits toward a four-year degree.

“I encourage students to first sit down with their adviser during their first or second year to make sure any community college classes they’re considering will transfer back,” she says.

She encourages students to visit their school’s financial aid office early and often for guidance on minimizing their student loan debt and discussing repayment options as they near graduation.

“The worst thing is to ignore your debt and go into default,” Meyers says. “That hits everything – your credit history, your ability to buy a car or rent an apartment.

“You don’t want to be in that situation. If you have questions about repayment, come to us. That’s what we’re here for.”

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