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Drowning in debt: More students in debt and at higher rates than ever before

NEW YORK — Holly Hatfield hardly ever eats out. She can't afford health insurance and hasn't gone on vacation in five years.

The 28-year-old lives in a tiny one-bedroom apartment in New York City as a graduate student at Columbia University but hopes to one day travel around the world, bringing essential items like water, food and medical supplies to villages in Kenya, Niger and Malawi.

It's nice to have that kind of vision in the back of her mind but sometimes it's hard to imagine how she is ever going to get there — financially. When she graduates, she will have more than $100,000 worth of student loans to pay off, and that's after working about 30 hours a week to keep up with expenses like housing.

"I never stop thinking about money," laments Hatfield, who is studying sustainable development. "I am going into a field that will help change the world and save lives, and I'm going in knowing I will be poor for the rest of my life. I am resigned to the fact that it is going to be a long, hard road financially."

Like Hatfield, millions of students nationwide are going into debt, more so than ever before; two-thirds of students now graduate with some amount of debt, The College Board reported. College students are also taking out more loans than they have in the past — averaging about $24,000 worth of debt at graduation, according to an October 2010 report by The Project on Student Debt.

Just last month, the U.S. Department of Education also announced that more students are defaulting on their loans than ever before with 320,000 students, or about 8.8 percent of borrowers, defaulting from the time they took their loan out in 2009 to 2010.

But for every borrower who defaults, at least two more are delinquent on their student loans, the Institute for Higher Education Policy found, and just 37 percent of borrowers are able to make timely payments.

Drowning in Debt

Part of the problem, experts say, is that tuition prices are rising much faster than grant aid or family income. Over the last 10 years, public four-year institutions have seen their tuition prices rise steadily over inflation by an average of 5.6 percent, with some colleges doubling or near doubling tuition from the 07-08 year to the 09-10 including colleges in New Mexico, Florida, Georgia and California, according to a news release by the U.S. Department of Education.

Another compounding factor is that once students graduate, they are having a tougher time finding a job.

The unemployment rate of students with bachelor's degrees was 4.3 percent in June, which is half that of those without a degree, but it is twice as high as it was before the economic downturn, said Mark Kantrowitz, a financial aid expert and publisher of and But even those who find a job aren't getting paid as much as they used to, said George Leef, director of research for the John William Pope Center for Higher Education Policy based in Raleigh, N.C. Leef said that 35 percent of college grads today are underemployed.

This is something that Jessica Allen, a second-year student at Roseman University in South Jordan, worries about. Allen, who will be taking out over $100,000 of debt by the time she graduates, said since she started pharmacy school, the need for pharmacists in Utah has decreased. This is part of the reason why she works every Saturday – to get her foot in the door. She also didn't want to take out more loans.

"I have never been surrounded by debt before," Allen says in between studying for an exam. "I am not naive. I have seen it destroy people's lives. I don't want to get stuck in debt."

But getting into student debt has also become a norm in society today, with a group of students who have "unprecedented access to debt," said Rachel Dwyer, a professor at Ohio University who has studied young adults and debt. Her most recent study, which was published in August in Social Science Research, found that young adults get a self-esteem boost by going into debt.

The study, which examined 3,079 young adults ages 18 to 27, found that younger adults and those from lower socioeconomic statuses viewed their debt more positively.

"The groups that most need the debt – the middle and lower classes – get the most benefits to their self-concept," Dwyer said, "but may also face the greatest difficulties in paying off what they owe. Debt can be a positive resource for young adults, but it comes with some significant dangers."

She said the students from her research were studied before the economic downturn, though, so she feels there needs to be more research conducted in the future on attitudes and debt.

Allen Merrell, a senior at Brigham Young University, said while he doesn't feel "cool" taking out a loan, he does feel more like a responsible adult.

Long Term Impact

Debbie Frankle Cochrane worries about how much debt students are getting into.

The program director for The Institute for College Access & Success, based in Oakland, Calif., said students who leave college with a lot of debt may delay other important choices in life like buying a house, starting a family and having children, which, she said, could have negative implications for the economy, families and society as a whole.

The future does not look much brighter as far as the number of loans go, though.

Just recently the government eliminated Pell grants for summer semesters. At the same time, states, too, are pulling back resources to higher education, causing most to raise tuition. And Kantrowitz says these compounding factors of grants decreasing and tuition increasing causes colleges to become less affordable.

He said at the rate students are borrowing and considering the fact that more students are taking out alternate repayment plans, many graduates today will still be paying off their student loans when their children go to college, which "will have a cascading effect into the next decade or two."

What Can Be Done

While Kantrowitz believes more students understand the meaning of going into debt, most still don't understand the full implications, he said.

Michelle Branhart of Oregon State University believes this comes partly from a society that has deemed certain credit as always being "good credit." For instance, she said, before the housing market crash, a mortgage was always seen as "good credit." Everyone thought prices of homes would continue to go up and thus it was almost always worth it to go into debt to buy a home.

She said society may need to also rethink the idea that student debt is always "good debt."

While there is pressure from parents and policymakers for everyone to go to college, she said some students have no idea what they want to get out of college and should first figure that out before getting into loads of debt.

"Lots of students are taking on debt, but have no real sense of what they are doing or how they are going to repay their debt," Barnhart said. "They would be better off taking time off and working and deciding what they want to do."

Students also need to be taught more about debt, Barnhart said. She found in an in-depth study released in March of 27 young, male middle-class Americans that all of the participants had learned about credit card use and debt primarily through personal experience.

Kantrowitz suggests that students don't take out more debt in college than what their starting salary will be. "Ideally, it should be a lot less," he said.

For instance if your starting salary from a certain degree is expected to be $40,000 a year, a student should take out a maximum of $10,000 a year.

He also said students need to realize that by the time they pay back their loan, it's probably going to cost them about $2 for every dollar they borrowed.

"Live like a student while in school, so you don't have to after you are done," he says.

Back in New York, Hatfield continues to struggle to make her payments even with a huge loan. She also feels like she will be living "like a student" for a long time.

She has considered different options like working for the government for several years to pay off her loan or drawing out her payments. But she figures, at least for her, it will be worth it.

"By getting this degree, I am probably going to be living in poverty, but once I have this education, no one can take it away," Hatfield said. "To me, education is the best investment because you can't lose it."

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