Students Hooked on Debt Widen the Gap

Federal student loan programs were supposed to make higher education more affordable, and thus more accessible, to those whose ambitions exceeded their household income. As the thinking went, students could choose the colleges they would attend based on their scholastic records and other achievement, not their familial financial wherewithal. Thus would upward mobility be ensured, at least in theory.

However, recent developments indicate that the opposite may be happening. Indeed, the relative ease of borrowing money to finance an education – and the low interest rates at which those funds are lent – may be contributing to a widening gap between affluent, middle class and poor students.

One of the most striking aspects of a 2003 report – published by Nellie Mae itself, and based on research that organization conducted – is the fact that the amount of federal student-loan debt incurred by graduates of public four-year colleges is growing at a much faster rate than the tabs accumulated by their private-college peers.

From 1997 to 2002, the amount of indebtedness to federal loan programs increased by 57 percent for public college graduates, as opposed to 35 percent for their private-school counterparts. The average amount of debt undertaken by public four-year college graduates in 2002 was $17,100 and the median was $16,200. For private college graduates, those numbers were $21,200 and $18,400, respectively.

The Nellie Mae report indicated that the trend of faster-growing debt among public college graduates was first noted during the 1980's and has intensified ever since.

Perhaps the most alarming note in the report was sounded with the finding that for four-year public college graduates, their debt financed 84 percent of the cost of their tuition, books and fees in 2002, while loans paid for only 71 percent of those costs in 1997. For all four-year colleges, those numbers are 75 percent for 2002 and 61 percent in 1997. Meanwhile, the average private-college student paid for about half of his or her education-related costs through loans.

A related report posted on Smart Aid, the Student's Guide to Financial Aid, indicates that the aforementioned trends have continued since Nellie Mae's 2003 report. In reading this and Nellie Mae's report, one finds much evidence to indicate that the phenomenon of increasing public-college graduate indebtedness has at least remained consistent and will likely continue to grow.

One of the main reasons for this is that a typical student at a public four-year college comes from a working- or middle-class family. Their incomes, as reports from organizations across the political spectrum attest, have risen at a much slower rate than those of the wealthier families that often send their kids to private college. So when a state university or municipal college raises its tuition, students and their families face more of a hardship in paying it than an affluent family does in paying for a private-school tuition increase. Thus the public-college student is more likely than her or his private-college counterpart to borrow more money – if he or she can – in order to pay for a rise in tuition.

Of course, once students graduate, they have to think about paying off the loans. Programs typically offer a six-month to one-year grace period in which students don't have to begin repaying what they borrowed, and paying the interest. A generation ago, that might've been enough time for the holder of a newly-printed baccalaureate in liberal arts to find employment that would allow entrance into the field in which the student studied and to make enough money to get on his or her feet. However, today's graduates may need even more time to begin their chosen careers.

Sometimes students decide to continue their studies for this reason alone. "Well, it's another two years of not having to pay," explained one of my students. "And the job market might get better." For that student, like many others, more schooling will mean more loans.

Whenever they begin paying, graduates will have to fork over anywhere from $100 to $600 a month. Students who don't have a trust fund or any other hereditary financial cushion must turn over a much larger portion of their incomes – which are typically lower than those of private-college graduates – to pay for their degrees.

Career novitiates who have recently graduated from public colleges also must spend larger portions of their income on rent and other necessities. Given that the greatest concentration of jobs for the young and ambitious is in high-cost urban areas such as New York, Boston and San Francisco/Silicon Valley, this is even more of a hardship for these young people than it is for their more "preppy" counterparts. This also means that the State U grad who's trying to make it in the big city will probably have to live in a marginal neighborhood and/or with roommates. Either of these is a detriment to forming the social networks that so often propel a young person's career after he or she has made the initial entry.

To afford a larger place or to live alone – or to buy the clothes and other accouterments of a young professional's life – they may rely on another form of loan: credit cards. While exact figures aren't available, many recent graduates report using their paychecks for rent and student loans. "For everything else, there's Visa," becomes an unintended truism for the young and ambitious but poor.

Students from working- and middle-class backgrounds are thus hooked into a cycle of debt: They'll probably continue to need loans to buy cars, homes and such – all to maintain some semblance of the possibility of upward mobility. Their wealthier private-college peers, meanwhile, are less bound by such concerns and can devote more of their time and energy to pursuing dreams or building power, and less to worrying about how to pay for everything, with interest.

December 10, 2005

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