HoustonChronicle.com -- http://www.HoustonChronicle.com | Section: Business
Jan. 28, 2003, 8:51AM
Loan debt, burden hit worse now
Student liabilities triple over decade
By GREG WINTERNew York Times
Every so often, when the phones grow quiet and the copiers still, Margot E. Miles glances at the lawyers devouring cases around her and thinks: "I could do that. I would love to do that."
A smile overtakes her as she envisions life as a lawyer -- fighting injustice, changing the world -- until the prickly reminder of having $25,000 in undergraduate loans wipes it away.
Dreams can wait. As for the need to quash her debt, she is not so sure.
"I go through this every day," said Miles, a legal secretary who graduated from the University of Pennsylvania five years ago. "I say to myself: `One day I'm going to do something phenomenal with this phenomenal education. I have to.' But it's just so hard to imagine taking out any more loans."
In their trek through college and beyond, student borrowers now amass an average of $27,600 in educational debt, almost three and a half times what they compiled a decade ago, according to a new survey by Nellie Mae, the student loan company.
And as college tuition has climbed, so has the number of students who borrow to help pay for it. Ten years ago, about 46 percent of graduating seniors had taken out educational loans in their undergraduate careers, according to the National Center for Education Statistics. By 2000, roughly 70 percent of them did.
The growing debt has begun to encroach upon other major purchases like homes and compels more than one in six borrowers, like Miles, to revamp their career goals to pay it off, the survey found. But perhaps most important, fewer students than ever say that taking out loans to attend college was worth it.
When Nellie Mae asked its borrowers a decade ago whether the benefits of their educational debt overshadowed the downside, nearly three-quarters gave a resounding "yes." Now, 59 percent say the positives outweighed the negatives, a warning sign that if debt levels continue to rise, students may start shying away from universities, or at least the more expensive ones.
"What's so worrisome is that for the first time, a lot of students are questioning whether they should have borrowed so much money," said Sandy Baum, an economics professor at Skidmore College who has conducted several such surveys over the last 15 years. "What will happen when people decide it's not worth it and won't go to college at all? We're not there yet, but we're really close."
The concern is grave enough that loan companies like Nellie Mae are urging students to borrow less, wherever possible, while some universities with big endowments are hurriedly increasing financial aid packages to keep educational debt to a minimum.
Still, for many students, loans have become an inescapable reality. Even after adjusting for inflation, the tuition and fees at private and public universities have more than doubled in the last 20 years, and though grants have increased as well, they have not nearly kept pace with the cost of higher education.
The outcome is that loans have essentially swapped places with grants on the seesaw of educational finance. As recently as 10 years ago, for example, loans accounted for a little more than 45 percent of all financial aid in the nation, according to the College Board. Today, they make up 54 percent, and few experts expect sudden changes in the equation.
For now, the scales still tip heavily toward higher education because college graduates can expect to earn $1 million more during their careers than those with a high-school diploma in tow, the College Board says, and advanced degrees are worth even more.
Student default rates are also at historically low levels, down to 5.9 percent in the fiscal year 2000 from 22.4 percent in 1990, a trend the Department of Education attributes to aggressive enforcement by universities, private lenders and the federal government to track down delinquent borrowers and to get them to pay up.
Statistics suggest that family background plays a big role in determining how students respond to higher debt levels.
According to the Nellie Mae survey, 62 percent of low-income borrowers said they regretted taking out so much in loans, compared with about half of those from families that were too well-off to qualify for federal grants. Similarly, only 54 percent of low-income students said the debt ultimately paid off in terms of their career goals, while 63 percent of their wealthier counterparts said it did.
There are many plausible explanations for the differing perspectives, researchers say. Because low-income students are less able to turn to their parents to help pay off their loans, they feel the burden more acutely. Maybe they have had less exposure to mortgages, car loans and other types of consumer debt, making their loans seem even larger.
Whatever the reason, it is the first time in the survey's 15-year history that low-income borrowers have expressed greater worry about their loans than their counterparts, providing a glimpse at the disparate impacts of rising debt.
"Beyond the concern that low-income students won't go to college, a bigger concern is that they will keep their debt down by working more hours during school," said Donald E. Heller, senior research association at the Center for the Study of Higher Education at Penn State University. "Working too many hours is one of the biggest factors in terms of not getting a degree."
"Indebtedness was becoming more and more of an issue," said William Wright-Swadel, director of career services at Harvard University. "We kept hearing, `I'm going to go work in industry for a few years, then I will return to what I care about.' Frankly I'm not sure how many of them were able to make the return trip."