“It’s always something there above you,” says “Zoe”, holding her hand above her head while describing her life after college with student loan debt.
A 1997 graduate of a liberal arts college in Michigan with a bachelor’s degree in environmental studies and journalism, she left college with approximately $24,000 in loans through Sallie Mae, which began as a federal government sponsored entity and by the end of 2004 had completed a privatization process.
Today, after consolidating much of those loans and obtaining a deferment from 1999 to 2001, Zoe’s debt has swollen to $28,000.
“When you’re 22 an amount like $24,000 seems so abstract,” she says. “I don’t think you really grasp what it means to repay a debt like that. You’re still so optimistic.”
Optimism flounders, however, when confronted by a mortgage, car payments, and other expenses of everyday living – all influenced by debt incurred during college.
She describes her and her husband’s financial situation in that common refrain, “living paycheck to paycheck.” Her loan payments total about $300 a month; $200 through Sallie Mae and the balance from other lenders.
Her husband, a lab technician, also has outstanding student loans of about $18,000.
“We’ve put off having children, we haven’t gone on a real vacation for over a year,” Zoe says. “You’re always wondering what if something happens? The other day I was doing a lot of gardening and my wrist began to hurt so I stopped. I thought, what if it’s carpal tunnel? I make my living at a computer keyboard.”
She and her husband purchased a home four years ago in Toledo for $70,000. (The median price in the city is now about $116,000.) Although the bank would have approved a loan for a home valued up to $90,000, the two decided to not extend themselves further.
There is one silver lining to their student debt. When applying for car and home loans, lenders have been, for the most part, understanding of their financial situation.
“There isn’t a stigma attached to it like there is for credit card debt,” Zoe says. “I think people appreciate the fact your debt is for education. They seem to appreciate the (college) degree.”
Zoe and others in her situation could consider a deferment - a postponement of repayment – on her loans but there are several requirements to be eligible for deferment based on economic hardship, according to the Department of Education. Returning to school also can qualify a borrower for a deferment.
Forbearance is another option some borrowers face if they aren’t eligible for a deferment but can’t meet their repayment schedules. During forbearance, payments are temporarily postponed or reduced. Unlike deferment, whether the loans are subsidized or unsubsidized, the borrower will be charged interest during forbearance. If borrowers don’t pay the interest as it accrues, it will be capitalized.
Effective July 1, some significant changes in the federal student loan program went into effect. Notably, Stafford loans issued after that date will not carry a variable interest rate but will instead have a fixed interest rate of 6.8 percent.
Stafford loans issued before July 1 will continue to carry a variable rate calculated by a formula set by statute which includes a cap of 8.25 percent.
And if history is any indication, many of today’s students will still be paying off those loans more than 10 years after they graduate.
A recent report by the National Center for Education Statistics states that by the time they graduate, nearly two-thirds of students at four-year colleges and universities have student loan debt. And among those with loans, the average debt since 1993 has more than doubled to $19,200. What’s more, in 1993 about 1.3 percent of all graduating seniors with loans had borrowed the equivalent of $40,000 in 2004 dollars. By 2004, the proportion had risen to almost 8 percent.
The $40,000 figure is significant. It is slightly more than double the average debt of graduating seniors with loans. It is also considered by analysts to be more than most full-time workers who are 25-34 with a bachelor’s degree can manageably repay in 10 years – the standard repayment period – at the 6.8 percent interest rate taking effect.
“Students with the most debt today have much heavier burdens than the biggest borrowers of 10 years ago,” The Project on Student Debt says of the study.