More students struggle to pay off college debt

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01/27/2012

More students struggle to pay off college debt

By Anna Marum

Murrow News Service

LONGVIEW, WASH. _ As Cowlitz County’s blue-collar industry struggled in recent years, students poured into the local community college in record numbers.

Now, those former students are defaulting on their loans at surprisingly high rates, sometimes within nine months of graduating.

“People came back to school because they didn’t know what else to do,” said Lisa Matye Edwards, vice president of student success at Lower Columbia College (LCC).

Nearly one in five LCC students defaulted on federal loan payments in 2009, the most recent year for which data is available. That rate is among the highest in Washington state, but other colleges and universities are seeing dramatic jumps in default rates as debt-laden students encounter a struggling state economy.

At the University of Washington and Washington State University, default rates remain relatively low, but they have increased more than 25 percent at both universities since 2007, according to data from the U.S. Department of Education.

“Even though the economy is not the best, I’m hoping it (the default rate) stays constant,” said Kay Lewis, the UW’s director of financial aid and scholarships.

Millions of students are struggling to pay off college debt, which is nearing $1 trillion nationally, according to financial analysts. As tuition rises and the economy flounders, more students are failing to repay federal loans, according to the U.S. Department of Education, which has documented a rising national default rate since 2006.

About 9 percent of students in the U.S. defaulted on their federal loans in 2009, up from 5.2 in 2006. At WSU, 3.8 percent of borrowers defaulted in 2009; at UW, 1.4 percent defaulted.

Chio Flores, WSU director of financial aid and scholarships, said she expects the default rate to continue to rise due to the struggling economy. Flores said a student in default is ineligible for more student aid, and the default may cause long-term financial troubles, from poor credit scores to garnished wages.

Lewis said though people who take out mortgages or other loans may declare bankruptcy to rid themselves of debt, those who take out student loans are unable to do this. Lewis said this is unacceptable, and students – especially those who attend public schools – need to have the bankruptcy option. Both Lewis and Flores emphasized that their universities work to educate students about the risk of student debt.

Last week, Sen. David Frockt, D-Seattle, proposed legislation that would require colleges and universities to counsel students about loans and debt. Frockt said some universities provide information for students, but this information is often lacking in quality. He likened the ease of taking out a loan to downloading a song – students don’t read the fine print or understand what their monthly payments will be when they graduate, he said.

“We want to give them better quality information so they can calibrate their academic field of study and so they’re not stuck with huge amounts of debt they can’t pay.”

At WSU, the average student graduates with more than $20,000 in debt, according to Kiplinger, a personal finance magazine that tracks student loans. At the UW, the average debt is just over $16,000.

For some students, that debt is manageable.

Taylor Garvin, a WSU senior in engineering, expects to graduate $60,000 in debt. He took out an extra student loan to provide for his wife and newborn son. But he said getting a high-paying job is worth the hefty loans, which he hopes to pay off within 10 years of graduating.

“I definitely wouldn’t sign up for something I couldn’t pay,” Garvin said.

For Brandon Chum, who borrowed $1,800 to enroll at Lower Columbia College in 2006, the debt continues to follow him. After a car accident, he fell behind on his private loan from Red Canoe Credit Union, and the debt has nearly doubled.

“I didn’t have money to pay all my bills,” said Chum, 26, who later dropped out of school. “I was making late payments, I was missing payments… After a while they (the credit union) just stopped contacting me entirely. So I thought I could get away with a bad credit score, but that wasn’t the case, at least with the banks.”

Last spring, the credit union began garnishing one-fourth of his wages from J.C. Penney, where he works in the shoe department.

“I’m paying far more than what I borrowed,” said Chum, who said he still owes more than he originally borrowed. “People are getting rich off me.”

However, Amy Davis, vice president of marketing at Red Canoe Credit Union, said because the credit union takes a loss when borrowers default, it is in the best interest of both parties to avoid this.

“We make money off healthy loans,” she said.

Edwards, the LCC official, said Cowlitz County’s economy struggled as the local paper mill had a series of layoffs and an aluminum smelter shut down. The unemployment led to a crush of new students at LCC, many of them non-traditional students who had lost their jobs and were trying to learn new skills before attempting to re-enter the workforce, she said.

Some of those students had trouble finding steady jobs when they graduated and were unable to repay their student loans, she said.

“Students who get themselves caught in that cycle often have other things going on too,” Edwards said. “They have to decide between paying loans, and paying for rent and food.”

The Murrow News Service provides local, regional and statewide stories reported and written by journalism students at the Edward R. Murrow College of Communication at Washington State University.

Comments

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I completely agree wit this. It is so hard to find a steady job when you come out of college making it nearly impossible to pay back the loans. I don't understand how we pay so much money to go to college to not have an opportunity to get a job, let alone pay back the money we owe from going to school. Since graduating I have had to seek debt help because I can barely make my monthly payments.

Posted by: Debt Help | 06/08/2012 at 11:02 AM

Student loans are one type of education mortgage. It is more difficult to qualify for this mortgage than any other. Private loans are issued by banks and other financial institutions and require the applicant has excellent credit ratings. Since many scholars have no credit ratings particularly those that have just graduated from high school and many have less than perfect credit ratings, it is difficult to get a private mortgage.

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