Financial debt burdens the lives of students
Student debt affects millions of U.S. alumni every month, bombarding graduates with thousands in unpaid dues and rising interest rates. With lenders demanding monthly payments for up to twenty-five years after student graduation, students face more debt now than ever before.
Student loans are meant to alleviate the financial burdens associated with college dues. However, once students graduate, the loans become the burden themselves. In 2016, around 44.2 million student loan borrowers owed $1.31 trillion in student debt, according to a survey conducted by the Federal Reserve Bank of New York, well surpassing credit card debt $779 billion and auto loan debt $1.16 trillion in the United States.
Many students are either not prepared for their amassing debt or have little education on the best way to handle it after graduation. The average debt for a 2016 grad student is $37,172, according to a study conducted by student loan expert Mark Kantrowitz.
“Many students in [financial aid] presentations demonstrate interest in budgeting techniques and loan repayment options, but do not seek out the information or resources on their own accord,” Associate Director of Student Lending in the LMU Financial Aid Office, Cerita Bickelmann said. “By the time a student is nearing graduation, stress may have built because there are multiple loans compounding over time.”
In order to better prepare for debt after college, Bickelmann recommends consistent communication with the servicer as well as exploring pre-payment or interest only payment options while still in school.
The majority of students take out loans to compensate for yearly tuition. Private universities typically have a higher annual tuition cost as compared to public universities. Tuition also differs for public in-state and out-of-state students. According to College Board, the average 2017 academic school year for private universities costs $33,480, while the average public university costs $24,930 for out-of-state students and $9,650 for in-state students.
Loyola Marymount University falls on the higher end of yearly tuition due mainly to its status as a private institution. According to the LMU Loan Department, LMU’s full-time undergraduate tuition for the 2016-17 school year is $43,526. This price, however, does not include room and board, books, supplies, personal and transportation expenses. Compared to the average private university cost, LMU’s tuition is steep.
With student debt and interest rates rising every year, many students graduate with more debt than they are prepared for. Even before graduation, the impending debt becomes burdening for many.
“Of course I’m worried about my future after graduating; in fact I’m more than just worried—I’m horrified.” LMU double degree candidate, 2016 graduate in Classics & Archaeology and senior in Mechanical Engineering Konstantinos Kaplanis said. “My amassed student loan debt and impending accrued interest haunts me the moment I rest my eyes.”
Unfortunately for students, tuition costs are always subject to change. On March 15, 2017, President Snyder released an email announcing the Board of Trustees’ recent budget approval for the 2017-18 school year. According to the email, next year’s budget will increase undergraduate and graduate tuition rates by 4.44 percent and increase the average housing cost by 1.5 percent. President Snyder said that the new budget resulted from “comprehensive cost-containment efforts and strategic planning.” The full-time undergraduate tuition cost for the 2017-18 school year will now be $45,460, according to the Loan Department.
Due to the high-cost of tuition, LMU seeks to help those relying on student loans or other sources of financial aid. “LMU works with students to help maximize grant and scholarship aid, and recommends many student loans as a third or fourth financing option,” Bickelmann said. “We assist parents and students on understanding all of their financial options, and if student loan financing is being explored, we help students and parents consider the lowest-interest options first.”
There are several types of plans offered to students ranging from federal loans to private loans. The most common types of federal student loans are Stafford Loans, Perkins Loans and PLUS Loans. Stafford Loans may be either subsidized or unsubsidized, meaning either the government pays off the interest or the student pays it off. While all students are eligible for an unsubsidized loan, subsidized loans are typically given to lower-income families.
The Perkins Loans are all subsidized and have a fixed interest rate of five percent. This type of federal loan gives money directly to colleges and universities, which will then distribute it among certain students. PLUS Loans are given only to parents and graduate students. These loans have no maximum amount and can be used towards any educational cost.
Private loans, or Alternative Education Loans, are offered to students and parents who cannot afford the university cost even after receiving some financial aid. These types of loans are lent by private lenders, meaning they do not use government funding. According to debt.org, eligibility and interest rate for private loans depends on credit history. Health Professions Student Loans (HPSL) also offer financial relief for students, but only for those studying specific areas of medicine.
Before taking out loans, it is important for students to consider additional factors like the university’s post-graduate outcomes and percentage of students at the university who default on their loans.
According to Assistant Vice Provost for Financial Aid, Michael Keane, LMU’s “Cohort Default Rate” – the percentage of all LMU students who borrow from federal loan programs and default on their repayments during a particular year – is only 1.6 percent. This means that the majority of LMU students who take out loans successfully repay them after graduation.
“LMU (and other institutions like LMU) have also invested resources to develop financial literacy programs for students and recent graduates that concentrate on student loan debt and repayment as we strive to make that default rate 0%,” Keane said.
In addition to student loans, scholarships are also meant alleviate some of the financial burdens. LMU offers various kinds of academic scholarships, undergraduate scholarships and athletic scholarships aimed to help families with tuition cost.
President Snyder released a statement on January 19, 2017 sharing news that LMU surpassed its Scholarship Initiative goal of $100 million.
“We raised almost $103 million for need-based scholarships to ensure that an LMU education remains accessible to academically qualified applicants, regardless of financial considerations,” President Snyder wrote in the notice. The scholarship money will be distributed among 338 different scholarships for LMU students.
In order for some students to keep up with their amassing debt, they must be mindful of their spending and living situations. Whether that mean living at home, working two or more jobs or refraining from future investments, loan debt directly affects the lives of borrowers.
Kaplanis further expressed disapproval regarding the student loan system. “No student should have to go through the paralyzing experience of fast handedly carrying out a loan debt calculation as each new semester elapses. It diverts attention from what is of paramount proportion, the education itself. Instead, some of us have resorted to working multiple hours a week while attempting to balance a full-time academic schedule just to barely hang on.”
Not only does loan debt affect the lives of students and graduates, but it also discourages wage increases, price inflation and influences the types of jobs people accept.
“Excessive debt or debt service compared to after-tax income encourages people to accept any jobs offered, no matter how little the pay or how bad the conditions are,” LMU Economics Professor, James Devine said. “Ignoring other changes, high debt or debt service encourages employees to cling to their current jobs, obeying and working hard for their employers.”
The future after graduation remains unpredictable for alumni, thus generating more stress regarding the monthly loan payments. While some find jobs immediately, some do not find work with a steady income until much later. However, for those who do find work right after graduation and have not taken out as many loans, the stress is much less significant.
LMU alumnus entrepreneurship major Connor Winchell ’16 views student loans as an opportunity for further investments when done correctly. “Once I graduated school, I quickly found a job and was able to start paying off the loans immediately. Sometimes it is smarter to take out a loan, pay it over time and use your liquid capital towards other investments that have a higher rate of return than the interest cost of the loan.”
Despite the heavy debt associated with student loans, there are several benefits to taking them out, especially if the borrower does not rely on them completely for financial aid.
“Instead of paying all of my money towards school, the loan gave me time and cushioning to figure out the financial situation of school at a later time. This helped me understand how loans work and has also helped me build my credit as a borrower,” Winchell said.
While loans do provide financial cushion, their high interest rates and monthly payments often become too expensive for some to pay off. Compared to the low default rate at LMU, the national default rate is significant. According to U.S. News, 17 percent of borrowers are behind on their payments or have admitted default. As a result, many seek guidance from federal figures.
During President Trump’s campaign, he briefly discussed a plan of action addressing student debt. According to CNBC, Trump’s proposal stated that borrowers would contribute 12.5 percent of their yearly income as compared to the 10 percent currently required under the Revised Pay As You Earn income-driven repayment plan (REPAYE). Trump’s proposal also called for loans to be forgiven after 15 years, as compared with the 20 to 25 years forgiveness rule through REPAYE. Since his campaign, however, Trump has said nothing more on the issue.
While Trump has remained silent, his education secretary Betsy DeVos recently withdrew two memos set forth by the Obama administration intending to improve the Federal student loan programs. The Obama-era memos focused on “simplifying the repayment process, better protecting borrowers, and facilitating [the] oversight of servicing contractors.” Through this plan, Obama sought to improve overall customer protection for student loan borrowers and lessen the likelihood of default.
DeVos withdrew the policies on Tuesday, April 11 with the intention to limit “the cost to taxpayers” and “increase customer service and accountability.” This decision has since upset many people in the education field.
Student loan expert Heather Jarvis told NBC News that the changes Obama made were “long overdue, and walking them back sends a message to borrowers that the government values the businesses over those with loans.”
For many, student loans seem to be the only option to pay for a higher education. While the goal of these loans is to provide students with more opportunities, the consequential debt is frightening. As the national student debt continues to rise, many students remain trapped in their finances after graduation.
