Student loans a heavier burden on graduates
Tyson Hunter dresses sharply, works out almost every day and can't wait to make his mark on the business world.
Hunter, 23, also happens to owe $152,000 in student loans, accumulated in four years at Boston University. He graduated last year with a degree in business administration and now earns $40,000 a year at a market-research company.
His loan payments soon will top $1,000 a month, about a third of his salary. If he makes the minimum payments, he will retire his student debt when he is 53, having handed lenders some $300,000.
“Buying a house? That's not even in the 10-year goals,” says Hunter, who has temporarily moved back into his mom's condo in Washington state.
At a time when deep uncertainty permeates the economy, graduates are entering the work force with staggering liabilities. The average student debt has doubled since the mid-1990s.
And that burden often has an effect on the most fundamental choices students are making — decisions about home, family and career.
Take Isiah Sandlin, 32, and Hollie Sexton, 26, who are studying medicine at the University of Washington. Sandlin already has $275,000 in loans; Sexton, $100,000. When the couple graduates in two years, they expect their combined loans will top a half-million dollars. Each new loan helps cover the payments on previous ones.
At least one of them will likely need to work in a high-paying specialty to make the whole thing fly. Sexton's dream of volunteering abroad seems a long way off.
“I couldn't quit now if I wanted to. No way,” she says. “Once you are on the train, you've got to keep going.”
While Hunter and Sandlin have exceptionally large loans, more than two-thirds of all students now borrow money to finance their education, up from less than half in 1993. Among undergrads who borrow, the average finished school in 2004 with loans of $19,000, up from $9,000 a decade earlier, according to one analysis of federal data.
Educators and economists have argued for decades that higher education represents a great long-term investment, thanks to the higher wages graduates can command. Janet Cantelon, director of student financial services at Seattle University, points out that even $300 a month is manageable for most graduates – the equivalent of a car payment – and a good long-term investment.
Yet the payoff is simply not as good as it once was.
Workers with bachelor's degrees do earn more – an average $51,000 a year, compared with $31,000 a year for high school graduates, according to the U.S. Department of Labor. But the department also reports that college tuition now costs five times what it did in the early 1980s, and it is rising at more than twice the rate of inflation. Inflation-adjusted wages, meanwhile, have remained stagnant since 2002.
Driving up college costs in recent years is the fact that states are investing less in public universities, putting more of the burden on students, says Jacqueline King, an assistant vice president at the Washington, D.C.-based American Council on Education.
With its professors and tutors, administrators and groundskeepers, education is labor-intensive, King says. The cost of employing skilled professors has risen sharply. And universities can't keep costs in check the way big business can, she added, by outsourcing or manufacturing overseas.
To be sure, student loans do help hundreds of thousands of students each year make it through college. And there are signs that parents are coming to grips with the new financial reality of college: Assets in so-called 529 college-savings plans grew from $15 billion in 2001 to $122 billion in 2007, according to the College Board.
But for students graduating now, large loan repayments are adding a significant financial burden at a time when they also face rising health care costs, expensive housing options and a difficult employment market.
Sandlin and Sexton say the amount they owe is a concern.
“I'd be lying to say it didn't color my specialty,” said Sandlin, who is looking into emergency medicine or a surgical specialty. “Some of the specialties I'm considering are of interest to me, but they also pay particularly well on the whole physician spectrum.”
On Sexton's 2008-09 financial-aid statement, UW outlines the expected cost of medical school: $50,500, including tuition, housing and personal expenses. The university subtracts “total resources” – zero – and offers a package that includes $3,000 in grants and $47,500 in federal loans.
Sexton is taking the full amount. She doesn't feel like she has any other option.
This story was originally published October 12, 2008 at 12:00 AM with the headline "Student loans a heavier burden on graduates."