Student loans: Delawareans face a rising, long-term cost of a diploma

For thousands of Delaware high school seniors, Friday is "Decision Day," when most must pay an enrollment deposit at the college or university they will attend this fall.

That modest outlay will be dwarfed by the cost of the education each of them seeks. Students who fail to consider how they'll pay for their degree could find themselves in financial quicksand for decades.

"It's scary," said George Thuku, an Appoquinimink High School senior who expects to spend $60,000 to $70,000 on his college education – at least half of which he'll fund through federal and private loans.

"It'll probably take me 20 to 30 years to pay it all off," the aspiring finance major said. "I don't think it's worth it, but I do think it's necessary, because you have to do it (to pay for college)."

One in nine Delawareans is carrying some form of student debt, according to data released by the White House last month. The average amount owed is $26,802, the 15th-highest average in the nation.

Collectively, Delaware borrowers owe more than $3.2 billion. By comparison, the state's operating budget for fiscal year 2015 is $3.8 billion.

Nearly 70 percent of seniors who graduated in 2013 had some form of student loan debt, according to The Institute for College Access and Success.

More than 60 percent of University of Delaware students graduate with federal loan debt. School officials say the current average amount is $21,586 for in-state students and $23,566 for out-of-state sudents. Delaware State University, the only other public four-year college in the state, did not provide the percentage of its students who graduate with federal loan debt. According to school officials, the average debt for its in-state students is $32,045 and $42,403 for out-of-state students.

Louise Fox, about to earn her master's degree in school leadership from Wilmington University and who will soon pay about $600 a month on the $57,000 she owes in students loans, says that monthly obligation means she is one unforeseen accident or health issue away from financial turmoil.

"I just have to hope that I don't lose my job or something like that," she said, "that would cause me to go into further debt.

"I've already been paying for three years," she said. "I'll probably be paying for at least another 10. It'll take me almost three times as long to pay it off as it did to actually get the degrees. I definitely have to be more cautious right now."

The 24-year-old has worked her way through school for the past 5¹/₂ years. She is now employed at an educational nonprofit in Dover.

"I've budgeted and I've saved every possible penny," said the Philadelphia native, who moved to Townsend two years ago. "That's where the big burden comes in – trying to save all those pennies that I can, while still paying all my bills, trying to further my education so I can stay in the field that I'm in, but still living my life.

"So my hope is that once I get my master's, I get a raise, and that I'm able to take a breath, make all my payments, and to get focused on what's next."

Fox's case may be extreme, but it is not unusual.

More than 43 million Americans owe a record $1.16 trillion in student loans, according to the Federal Reserve Bank of New York, or FRBNY. That averages out to nearly $27,000 per person.

In 2012, student loans surpassed auto loans and credit cards to become the second largest form of debt in America, behind only mortgages.

The nation's student debt load is now comparable in size to the $1.3 trillion value of subprime mortgages in 2007, just months before the housing bubble burst, sending the nation into the largest economic downtown since the Great Depression.

Publications across the country have called student loan debt the next looming financial crisis – a position experts say is overstated. Crisis or not, the overall numbers paint a daunting picture of debt.

Total student debt load is at an all-time high, having doubled in size over the past eight years and growing at an average of 11 percent annually, according to a 2014 report from The Vanguard Group.

Delinquency and default rates have skyrocketed over the last 10 years. The number of borrowers who default each year – those with payments overdue by nine months – increased from about 500,000 a decade ago to 1.2 million per year in 2012.

Even adjusted for the increase in borrowers, the annual default rate on all student debt increased from 2.4 percent in 2004 to 3.6 percent in 2012, the FRBNY found.

The annual default rate has since declined to 3.06 percent, although those who borrowed during the recession are still registering double-digit default rates.

The percentage of delinquent loans – those overdue by more than 90 days – doubled from 6 percent in 2005 to 12 percent in 2013.

In Delaware, the U.S. Department of Education's default rates for students who entered school in 2009 – the most recent federal data available – are: UD, 3.7 percent; Delaware State University, 14.1 percent; Wilmington University, 8.4 percent; Wesley College, 16.4 percent.

The leading contributor has been sharp increases in college tuition over the last decade – an increase driven in large part by decreases in state funding.

"Most students go to public institutions, but the cost of college that's being borne by the student is going up," said Joel Best, a University of Delaware sociology professor and co-author of the 2014 book, "The Student Loan Mess: How Good Intentions Created a Trillion-Dollar Problem."

"State legislators are subsidizing college at a much lower rate and everyone is getting squeezed a lot harder."

The recession also convinced greater numbers of high school seniors to seek a college degree in the hopes a higher education would give them a leg up in the dwindling job market. With families increasingly feeling the pinch, record numbers of students turned to federal and private loans to finance their education.

The tight bank lending standards that come with most loans aren't extended to student loans and with explosive growth in the borrowing pool, more and more loans were extended to riskier borrowers who found it harder to find jobs that would pay enough to cover their monthly payments.

Not all analysts agree that those factors are evidence of a financial disaster.

"I don't think there is a broad-based student loan crisis that affects most everyone with student loan debt," said Matthew Chingos of The Brookings Institution, a nonpartisan think tank in Washington, D.C. "On average, people are doing OK. Yeah, they're paying more for college, taking more in loans – but their incomes have also gone up a bit, and they're spreading their payments out over a longer period of time to make up for the fact that they've had to borrow more.

"There are real problems," Chingos said. "There are a number of crises in student lending. But there isn't a broad-based crisis of the kind you read about in the newspaper."

In a study published by Brookings, Chingos and Beth Akers, relying on Federal Reserve data, concluded that borrowers are no worse off now than those of a generation ago.

They based their conclusion on three findings: more Americans going to college, and seeking graduate degrees in fields such as business or law; average lifetime incomes of college-educated Americans have "kept pace" with increases in debt loads; and the monthly payment burden students face has remained fairly constant.

"We find that, on average, increases in lifetime incomes among households with student loan debt more than offset increases in borrowing," the two analysts wrote.

For many with student debt, balancing monthly payments with everyday living is a challenge.

Laura Trzonkowski, 27, of Bear, is completing a bachelor's in business management at the University of Phoenix. She's completing her coursework in May and figures that she'll still owe $17,000 on her student loans.

"It's hard," said Trzonkowski, who earned her associate degree attending Cecil College part-time. "It's kind of difficult knowing that I'm going to be under so much debt once I get out of Phoenix."

To help pay down her debts, she works full-time as an executive assistant at Winbak Farm in Chesapeake City, Maryland. She also works nights as a local pizza shop assistant manager.

Trzonkowski lives with her parents and does not expect to be able to move out anytime soon, even after graduation.

"Probably won't be able to afford it," she said. "I would love to. But that's another thing, with paying off the loans, that's going to definitely hold me back."

She drives a 2006 pickup that she'd like to replace. And she fights with a balky computer.

"I don't want to overload myself with a whole bunch of loans," she said. "I want to get a replacement laptop. I'm trying to make it last until I'm actually done with school, because I've been having a lot of problems with that. That can be pretty pricey.

"I'm just trying to pay attention to the bills that I do have right now. I'm trying not to add on to it."

Fox, although working full-time while earning her master's degree, said she feels so financially strapped that there have been months "where it would really be nice, especially in the summer, go to dinner or go to an amusement park, things like that. Instead, I really have to watch my spending, just so I'm able to pay my school loan every month."

"Just gonna have to pay for life, outside of school," Trzonkowski said. "It's tough."

Fox also worries the student debt issues will delay her ability to start a family.

"With student loan payments each month for the next 10-plus years, I think it will be extremely difficult to have children," she said. "I love children, I want to have several, but can't imagine doing so because it will mean time away from work and additional expenses each month."

Her student loan obligation weighs on her just about all the time.

"It's definitely overwhelming," she said. "I mean, the number is considerably large – definitely more money than I make in a year. So to think that it's going to take me so long to pay that off … you know, I worry on a pretty daily basis that if something were to happen … that's the majority of my concern. Because I don't know what tomorrow holds. I think that's my biggest fear: What if I can't make that payment?"

The total number of defaults nationwide are rising because more people are borrowing. A total of 17 percent of student loan borrowers are in default or delinquency, FRBNY found; only 37 percent of borrowers are current on their loans and actively paying them down.

Accurate, up-to-date state-level information is hard to come by. "The data is released voluntarily," said Eric Best, co-author of The Student Loan Mess. "So when every institution isn't required to report the same data, it becomes very difficult to pick out reliable information, especially in a small state like Delaware."

A contributing factor to the rate of late payment, Chingos said, is that few debtors take advantage of income-based repayment plans for federal loans that allow hard-pressed debtors to pay no more than 10 to 15 percent of disposable income toward the balance.

"If you make little enough, you pay nothing," he said. "The loans keep accumulating, but you don't have to make the payments until you make money. If you haven't paid it off after 20, 25 years, it's forgiven. It gets wiped away. But people are not signing up for these programs, and they're defaulting instead."

Many students, Chingos and Akers found in a survey of freshmen borrowers, lack awareness of the amount of debt they are accumulating.

"They can't tell you, accurately, how much debt they have," Chingos said. "Twenty-eight percent told the survey, 'I don't have any federal debt.' And 14 percent told the survey, 'I don't have any debt.'"

Debt repayments and subsequent higher risk of incurring poor credit scores are a combination that makes it harder for student loan debtors to take on auto loans, mortgages and small business loans.

"Although we've seen an overall improvement in delinquency rates since the Great Recession, the increasing trend in student loan balances and delinquencies is concerning," Donghoon Lee, research officer at FRBNY said in February. "Student loan delinquencies and repayment problems appear to be reducing borrowers' ability to form their own households."

Those burdens have even been linked with statistics that indicate young people today are living with their parents longer and postponing marriage until they're older.

"I was talking to one of my classes last week and asking them about why we have a relatively high age of first marriage now," Best said. "One of the things my students told me is that people today are making cold calculations about what kind of loan debt does this person have and can I afford this."

Hundreds of high school seniors in Delaware could be at risk for joining the ranks of those saddled with unmanageable student loan debt based on decisions they make before attending their first lecture.

One element graduating seniors must consider is whether to and how much to borrow: the availability of jobs in their field of interest, and the future earnings potential of that line of work.

That begins with the choice of major, said financial management adviser John Haller.

"You may want to be a zoologist," the 52-year-old New Castle resident said. "But it's not like there's a lot of zoology jobs out there."

Haller worked while attending college but still had to take out student loans each year. He ended up owing about $20,000 when he graduated, but landed a good job and paid off his debts after 10 years.

"As we go forward, it'll probably be even more difficult," Haller said. "College costs are going up. And it's faster than what your average college kid or average family can make."

Another pitfall students who take out federal and private loans must avoid is leaving school before graduation. Those students end up with the financial burden of college without the job prospects that would enable them to pay off those debts.

Those with the really big balances – more than $100,000 – are less likely to find themselves in financial trouble because their educational investments produced a high return, careers in medicine and law, for instance.

Then there's the matter of the chosen school's cost. Students at for-profit colleges like the University of Phoenix, Strayer University and Corinthian College stand a greater chance of incurring student debt that they later find difficult to pay off than their peers at community colleges.

Last year, the U.S. Department of Education reported that students at for-profit colleges make up about 13 percent of the total higher education population, but account for about 31 percent of all student loans and nearly half of all defaults.

Lewes resident Amy Kobre accumulated $35,000 in student loan debt while pursuing her master's degree in counseling from Capella University, an online school based in Minnesota.

Her loans are in deferment, but her son, Cape Henlopen High School senior Dylan Elkins, is now preparing to take on school loans of his own as he pursues a finance degree from the University of Delaware.

"I've been on him for years to make sure he applies for scholarships and grants, but he didn't listen to me," she said. "He knows any loans he gets are on him and I'm proud of him that he's taking responsibility for that, but I do worry because I would have liked for him to be debt free for as long as possible."

Students also expose themselves to greater risk by choosing to attend a school based on its prestige, rather than its cost.

"A lot of families and students decide that there are certain colleges and universities that will prepare their son or daughter better to be a CEO of a Fortune 500 company or to be a lawyer or a doctor," said Christopher Lucier, the vice president of enrollment management at the University of Delaware. "And they decide to make choices to attend institutions where they are going to incur greater loan debt than if they had made a choice to go to their in-state institution."

Lucier and other experts say the best ways to avoid unmanageable student loan debt after graduation is for students to know what they're getting into before accepting a school's offer.

Amid the surge in student loan borrowing over the last decade, the U.S. Department of Education has created new tools to help.

Those tools include the federal Financial Aid Shopping Sheet, in which 2,000 participating institutions – including the University of Delaware and Delaware State University – offer to help students compare schools based on the financial aid package they receive.

"It tries to simplify the information students receive about the costs and ancillary aid students receive so they can lay down the shopping sheet of UD against the shopping sheet of another institution and make that informed decision in a way that clearly breaks out aid they don't have to pay back, and loan borrowing," Lucier said.

A similar tool all colleges and universities are now required to provide on their websites is a net price calculator, which estimates a student's eligibility for financial aid and all expenses associated with getting a degree, not just tuition and fees.

While those tools can help, figuring out exactly how much a school will cost and how much monthly student loan payments will be still requires a lot of research and planning.

It's an effort not everyone is willing to make.

Lucier said the University of Delaware received close to 20,000 applications over the past year, while less than 4,000 visits were logged to its net price calculator.

One reason for that lack of student loan planning is the very demographic for whom they are targeted.

"When you're 17 you're not always in the best position to make plans," Best said. "If you go to the student union on any college campus, you'll see a card table set up where banks will give you a free dictionary or a free T-shirt for signing up for one of their credit cards. Meanwhile, in the next building over, the admissions office is helping these students take out thousands of dollars in student loans. On the one hand, we say these students are too young and inexperienced to sign up for a credit card, but we think nothing about having them borrow for their education."

There are options for those having trouble making their federal student loan debt payments. The most important thing one can do, experts agree, is to call the company serving the loan for a candid discussion on a path to solvency, said Nikki Lavoie, a spokeswoman for Wilmington-based Navient, the nation's largest servicer of student debt.

"It is really important to understand what type of student loan that you have," Lavoie said, "and if you're having trouble, to talk to your servicer, and select the repayment plan that's best for you."

Another option for federal loan borrowers is forbearance, or a "temporary break" commonly given during the transition from school to a new job. It's only recommended as a last resort, Lavoie said, because it extends the loan and increases the amount owed.

Debtors who work for the federal government or a quasi-governmental agency such as Amtrak can take advantage of the Federal Student Loan Repayment Program.

"The government will actually pay off to up to $60,000 worth of your federal student loans, up to $10,000 per year," said Lynnette Khalfani-Cox, author of "Zero Debt for College Grads." "What's the catch? You have to work for an agency of the federal government."

With Decision Day fast approaching, Khalfani-Cox will speak about cutting college costs during a free presentation Tuesday from 6 to 8 p.m. at the Chase Center on the Riverfront, courtesy of the Delaware Financial Literacy Institute's The Money School.

Under certain circumstances, loans can also be forgiven. Multiple options exist for loan forgiveness – parental loans excepted – but all forgive the loan balance after periods of time ranging up to 25 years. But this option can result in serious tax consequences, experts warn. For those in pay-as-you-earn programs. For instance, the amount of forgiveness counts toward taxable income in the final year of repayment.

Federal law precludes the discharge of student loans in bankruptcy unless a court rules there is undue hardship. The Obama administration is studying options for expanding bankruptcy options for both public and private student loan debtors, as well as to limit monthly payments.

For now, Fox, of Dover, is planning to tackle her debt head on. But the prospect, she said, is daunting.

"I think now, especially, because I'm about to graduate from Wilm U. You know, I know that there's going to be opportunities down the line for me to go to get my doctorate and continue. But at this rate, I can't see that happening until I pay off my other loans."

Fox is in a deferment status and pays $350 per month on her two loans, which, if she continued at that rate, would take upwards of 15 years to completely pay off. That won't happen, however; she'll begin paying in full once she graduates, and she figures her payments will go up to nearly $600 per month.

Stories like Fox's weigh heavily on the mind of Milford residents Christina and Michael Allen, whose daughter Tyler, a senior at St. Thomas More Academy in Magnolia, plans to major in neuroscience at the University of Delaware this fall.

Christina owns two preschools in Sussex County. Michael, a former operations manager at a steel company, was recently laid off.

"In all the years we've been together, we've just always made things work and I'm sure that's where we will be with this," Christina said. "There's comfort in knowing she's not going to wind up finishing her undergraduate degree with more than $22,000 in debt … but our concern is she's the oldest of four girls, the youngest being 4, so we've got 18 years of this ahead of us."

Christina said she's also concerned for Tyler, who will have to take on additional student loans alone if she continues on to medical school.

"The cost of medical school is $300,000," she said. "We have known several people who are doctors and it doesn't matter how much money you are making, those loans loom very heavily."

Tyler, an 18-year-old who has never even taken out a car loan, says she appreciates the financial burden she's about to take on.

"I'm a little nervous about how I'm going to do it but I'll figure it out," she said. "I plan to work through my undergrad (education), save as much money as I can and just make it work somehow."

Contact Scott Goss at (302) 324-2281 or sgoss@delawareonline.com. On Twitter: @ScottGossDel. Contact William H. McMichael at (302) 324-2812 or bmcmichael@delawareonline.com. On Twitter: @billmcmichael