The Social and Economic Impact of Student Debt

As college enrollment and costs continue to rise from previous decades, more students are borrowing loans in order to continue their education, with the ultimate goal of receiving a degree to give themselves a more rewarding and successful career.

According to the most recent Census data, there were a reported “19.5 million college students, including 5.3 million in two-year colleges, 10.5 million in four-year colleges and 3.7 million in graduate school” as of the year 2013, more than doubling the college enrollment since the 1970’s.

Financial Aid Director Mark Evans, said in terms of trends, universities are seeing nationally, student loan debt is on the rise due to the lack of federal and state support for higher education purposes. However, “the percent of borrowers at Kent State when they graduate, remains “around 74-75%” (referring to those who borrowed at least once during their academic studies).

The office offers walk-in counseling from 8 am to 5 pm every day. “There are 200 outreach programs, such as meetings taking place on weekends at the Cartwright Auditorium to help students and parents to go through the financial aid process”, according to Evans.

Among the growth in enrollment statistics, the escalation of college tuition is also a trend that greatly effects students in more ways than one. Looking at the long-term trend, “College tuition has been rising almost six percent above the rate of inflation“, According to Ray Franke, a professor of education at the University of Massachusetts, Boston.

“Falling behind on student debt is the worst thing you can do out of college. You’re already in a position where you’re not going to be making as much as you’d probably hoped, and your lifestyle is changing from a student who typically has free money to pay for their lifestyle, and once they’re out of school,

they’re now in a position to where they have to actually earn money to pay their own way, as well as that debt payment that hits them as soon as they stop going to school”, said Brandon White, a financial advisor at Raymond James Financial Services.

The interest rate on my current (student) loans are at 6%, said White. “I’ve been told by multiple people that I have a very attractive rate”, he said.

According to White, it’s preferred to get the interest rate to be as low as you can get it. “You just have to pay what you are contractually obliged to pay, as well as stay on top of your payments”, he said.

“Being informed of what the educational expenses are, and then sitting down and creating a budget in terms of expenditures for food, or if they have a meal plan, to budget that. So each semester they are budgeting their money throughout the week so that they don’t overspend or underspend.”

Mike McCortney, financial advisor at Raymond James Financial Services, offers student services aside from many others, that are focused on advising students to keep on track with paying down their debt. The goal is to give students and graduates a more effective and valuable strategic plan to save while in school to aid in the prosperity of their future.

Coming straight out of college and being in a position of not finding a job to create income in order to pay debt down, is the most common reason students utilize their services.

“College is expensive, number one. I’m not sure how we would get that under control. The inflation rate on that is extremely high”, said McCortney.

Sophomore Scott Cole, said if he could change one thing about college expenses it would be the cost of textbooks. “Books are definitely a racket. I don’t see why we have to pay, for example, $200 and it’s just a packet. And you realize the book is only costing you $10 and the access code is costing $190.”

In terms of managing payment of books, Evans recommends for students to look at other options, whether it be leasing them or renting them, and buying used versus buying them at full price.

Sophomore Airaka Dickson, also agreed the costs of textbooks would be the one thing she would change. She said the high costs of textbooks impeded her personal finances and put her on the backburner for paying other bills on time. “Books are what kills me, personally. It’s why I wasn’t able to pay my tuition this semester because of how expensive my books are, even with renting them.”

According to White, the federal loans, who house most of the debt repayment plans, will typically have structures repayments.

“You can do a 15 year repayment, or a 30 year repayment. You can even put them into deferment, so you don’t have to pay right away. If you get out of college and start off making $30,000 and you just can’t afford it, they have options to allow you to push off payments”, said White.

“It’s the biggest liability on my personal balance sheet, and I want it (student loan debt) gone”.

White said his student debt affects his personal and family life as well.

“My loan payment could be spent on networking in the community, many many pairs of shoes, clothing for the kids. I’ve got three girls, ranging from age 2-11, so an extra $300-$500 every month could go a long way.”

[pullquote]”It’s really just how you want to spend your money and how you want to live your life. If you want to party until you’re 40, and then work until you die, that’s your prerogative. But, I don’t recommend it.” -Brandon White [/pullquote]

“The same is true for retirement as well. I’m not going to be making that payment, but I’m still going to be taking that money and setting it aside into an IRA or a tax account and just start saving, so if I’m continuing along that path of just putting some money aside, that’s just increasing my livelihood in retirement by an equal amount”, he said.

Are students able to consolidate their loans?

Yes. Consolidation changes over the years.

“Probably about seven or eight years ago interest rates were about 3.4 percent, there was a national backlog in loan consolidation”, according to Evans.

It is not for everyone, though.

“When you consolidate a loan, you give up all your rights and responsibilities. Deferment options, cancellation options. So it’s like refinancing a home, it’s a whole new loan — where all the options that a student had, disappear”, said Evans.

What happens if students cannot make a payment?

“They will essentially default you. By not paying, you are defaulting on your loan. If you fail to make it, they’re going to tack on a late fee,” said White.

If late payments continue to happen, those federal loans may turn to the U.S. Department of Education, where when you default on them, it could affect your job and wages.

“If you defaulted on your student loans and say you’re working for the Stark County School Board, they can start garnishing your wages, and they will”, said White.

Where can students go for financial counseling and further advice? 

The Bursar’s Office has put forth an effort to provide financial counseling, financial awareness and other tools for students, according to Anissa Strickland, senior associate director at the Student Financial Aid office.

“There is a program called ‘Cash Course’, which is an online tutorial and tool that students can use from anything from budgeting personal expenses to learning about other different types of lines of credit and other things. But really, it’s about how to be wise and responsible with the money you have while in college,” said Strickland.

According to Evans, every student is at least guaranteed at least an unsubsidized loan. If students need more, he advises them to always take out subsidized loans before unsubsidized when given more loans; because they are interest free, and exercise the rest in unsubsidized loans.

“Kent State has had great support from the executive officers from the top level-down of investing in scholarships. $55 million in scholarships were offered to the freshman class last year.” He said scholarships are important to apply for or partake in if applicable.

Evans said the single most important piece of advice he would give to students about to graduate is to keep their information up-to-date with their lender, regardless of who that is.

“If they’re in a position where they are not able to pay back that loan, do not ignore those phone calls, letters, emails, etc. because once a student goes into default, there are, unfortunately, steps that the lender can do to collect that money back.”

“It’s very important that they would be in contact with their lender to look at all the options, because there are options that exist today that did not exist years ago”, said Evans.