Huge college loans eating up salaries

John Donald and Teresa Bujacich, both health care professionals, don't consider themselves poor, and they wouldn't meet anyone's objective measure of being poor.

Yet they share many of the same challenges as other working poor in the Seattle area. They watchdog their budget, juggle bill payments and live month-to-month. There is no money to save for retirement. No emergency fund. They've made a lifestyle choice not to buy cell phones and cable TV, but even if they wanted to, they could barely afford them. Mini-mansions have popped up like mushrooms in the area surrounding their practice, but they are raising their baby in a modest one-bedroom condominium in Bothell, a 30-minute drive from their work.

The reason? Student-loan debt.

Between the two, Donald, an acupuncturist, and Bujacich, who is both a naturopath and acupuncturist, have 16 years of higher education and nearly $350,000 in student loans, a massive liability that costs them $1,700 a month in loan payments.

"I'm grateful for the opportunities," said Bujacich. "But going through life with basically two mortgages is daunting. It does limit where we feel we can go, what our options are."

"It's scary, what we've gotten ourselves into," Donald said. "In order to feel like we're meeting our (expenses) ... we need to make $85,000 (a year) between us. But we're not making it."

Donald, 40, and Bujacich, 39, are part of a growing contingent of college graduates who are embarking on careers under sometimes-overwhelming debt loads. Experts say this generation of college students is the most debt-burdened in history.

About 40 percent of students now graduate with what lenders consider "unmanageable" debt loads, meaning their payments eat up more of their salaries than is considered financially sound, said Luke Swarthout, who works on higher education access issues for Washington Public Interest Research Group in Washington, D.C. "And there's nothing to suggest it's getting better," Swarthout said.

Driven by rising education costs and easier access to funds, total student loan debt has ballooned during the past decade, economists said. About two-thirds of students now rely on loans to graduate, compared with less than half a decade ago, according to a report by the Center for Economic and Policy Research, a Washington, D.C.-based think tank.

This combination of forces has the potential to create a new class of working poor -- those who have fallen behind before they've had a chance to get ahead. These are secret strugglers. They aren't counted anywhere, and no one is sure how large their ranks are, although anecdotal evidence would suggest they are increasing. They don't necessarily look, act or identify themselves as financially challenged. They are rich in education, but they've leveraged their futures for the privilege.

Based on the center's analysis of government data from 2004, the average amount of government loans used to graduate from a four-year public institution was $15,662, compared with $9,798 (adjusted for inflation) in 1990. For private schools, the average amount borrowed was $22,581, about one-third higher than in 1990.

Federal student loan figures don't take into account the growth in private loans, which are the fastest-growing category, and credit-card debt used to offset growing college expenses. A recent Nellie Mae study estimated about 25 percent of students put some of their education on credit cards.

"One of the most provocative things we found was the share of student costs covered by loans has fallen even as the amount of loans has increased," said Heather Boushey, an economist for the research center.

"To put this in perspective, back in 1981, a student could work full time all summer at a minimum wage job and earn about two-thirds of their annual college costs," she wrote in a recent report. "Today, however, a student earning the minimum wage would have to work full time, (for a) full year to afford one year of education at a four-year public college or university."

The money borrowed for a college degree may mean higher earning potential -- by some estimates a college education can add $1 million to a graduate's lifetime earnings -- but it has unexpected costs as well. Student loan burdens affect people's choices: what kind of job they take, where they live, whether they buy a home or start a family, said Swarthout. "It has serious consequences."

There's a social cost as well if graduates start to veer away from lower-paying but socially critical jobs, such as teaching, social work, legal aid or non-profit work.

"The lawyer with $150,000 in law school debt doesn't take a $40,000-a-year public interest law job," said Sandy Baum, professor of economics at Skidmore College in New York. (Editor's Note: Baum's affiliation was listed incorrectly in the original version of this story.)

Scraping by

Sandra Mears, 42, is living in the headlock of student loans.


		Paul Joseph Brown / P-I
	Sandra Mears accumulated $110,000 in student loans while earning her master's degree. She earns about $48,000 as executive director of Puget Sound Alliance for Community Technology. She said the financial burden of her loan payments has her thinking about leaving the non-profit world she loves.

Mears got a late start on a professional degree, earning a master's in non-profit leadership from Seattle University and accumulating $110,000 in loans in the process.

A former Jesuit volunteer, she spent her early adulthood in a series of volunteer or low-paying positions, working with homeless populations, advocating for welfare rights and running a food bank for HIV-positive clients.

Last year, she petitioned the U.S. Department of Education to forgive a portion of her loans -- less than 20 percent -- because her prior work was so focused on service. She lost.

Today, she is executive director of Puget Sound Alliance for Community Technology at a salary of about $48,000 a year. Between the government loans and attorneys' fees, she owes nearly $600 a month. She and her partner live in a $910-a-month, one-bedroom apartment on Capitol Hill. There is no dishwasher. No cable. No high-speed Internet hookup.

"I want a dog," she said. "I thought at my age I could get a terrier. But I can't with an apartment."

A retirement fund, too, is a luxury.

She's contemplating moving to the corporate sector, away from the non-profit world she loves, to ease her financial burden.

"I see other people driving new cars, and yeah, I'm human. I'd like to do that, or to be able to take my mother to Alaska," she said. "I'd like to be in a position to help."

Derailed ambitions

While students have taken on increasing levels of debt, they aren't necessarily seeing the payoff in improved economic futures as they had hoped.

"Statistically speaking, the chances of moving up (the) income distribution (curve) is less than it was a decade ago," Boushey said. "Students with debt face real concerns with the shrinking middle marketplace."

Tight job markets and the growth of lower-paying service-sector jobs mean students can no longer assume they will have the cash flow necessary to make steep payments.

Having $24,000 in loans isn't much of a problem if you get a degree in a high-paying profession. But many students with outstanding loans never even finish their studies.

Life intervenes -- divorces, moves, layoffs, false starts.

Clint Cantu, 27, who lives in Kent, went to college in California to play football and earn a degree. An injury sidelined both, and he returned to Washington hoping to work and go to school to pursue a career in law enforcement.

"I got a job with the intention of going to school, but I could not afford to go to school without working, and could not work at a job and survive economically working part time," he said in an e-mail interview. Now he's earning $12.20 an hour working in customer service for a wireless company, living with his parents, and trying to figure out how to repay $12,000 in student loans.

"I never in my worst nightmares thought that, at 27, I would be living (at) my parent's house," he said. "When I begin to repay them (the loans), they will be about $135 a month and I hate to say it, but that will be a major dent in my income based on my current wages."

A Seattle P-I analysis showed that the majority of the more than 147,000 workers living at no more than twice the federal poverty level in King and Snohomish counties had some college education, although fewer had bachelor's degrees.

Boushey is familiar with this situation.

"It's a common story -- (people) go to community college for a couple of years, and one year at a university, then something happens and they never go back," she said.

But the loans stick. Unlike bad consumer loans, which are subject to statutes of limitations that vary by state, student loans are forever.

No escape

That point was dramatized last month when the U.S. Supreme Court ruled the government could garnish Social Security payments to pay for old student loans.

James Lockhart, 67, of Seattle was living on $874 a month in disability and eligible for food stamps three years ago, when the government began seizing 15 percent of his check to pay for student loans he'd incurred during the 1980s.

Lockhart, a diabetic who has had double-bypass heart surgery, lives in public housing and is barely getting by, said his attorney, Brian Wolfman, who works with Public Citizen Litigation Group, non-profit consumer advocacy group based in Washington, D.C.

"For someone on that level of income -- it was devastating," he said. Lockhart declined through his attorney to be interviewed.

"We don't disagree people ought to pay back their loans ... or that those who don't shouldn't be pursued," Wolfman said. "But you can't go after someone forever."

According to the government's brief in the Lockhart case, delinquent debt owed to the Education Department is in excess of $33 billion.

Default rates have fallen in recent years, however. People have many more options available to them for paying loans back, said a department spokeswoman. The default rate is now at less than 5 percent, far lower than a decade ago, a reflection of extended payment plans as well as more rigorous collection efforts.

Still, some fear that could change as costs continue to spiral, private loan amounts soar and interest rates creep up.

"So far, the debt payment ratio (of loan payments to income) hasn't been higher this decade than during the 1990s, but it's been partly held in check by lower interest rates," Boushey said. "In some sense, we haven't seen the whole burden bearing down yet."

Caution urged

The situations faced by Mears, Donald and Lockhart may be more extreme than most, but some economists believe more people will be squeezed by their payments as costs escalate and people borrow more.

Those who analyze student debt are concerned debt levels will reach a critical point that could deter students from pursuing an education.

Debt analysts suggested one solution would be to provide more opportunities to repay loans by devoting time to service. Medical students, for example, can offset loan costs by agreeing to practice in underserved rural areas.

"In a second, we would go to the most bug-infested place -- the hottest, driest part of the world -- to pay off our student loans," said Donald, who practices in Issaquah. But that option isn't available for alternative practitioners.

Still others favor more part-time education opportunities, expansion of grant aid that doesn't need to be repaid, greater access to income-contingent repayment plans and increased opportunities for loan consolidation at lower interest rates. Currently, loan-holders are precluded from consolidating more than once, leaving them stuck, in some cases, with higher-than-market rates.

Those who now find themselves saddled with debt urged parents, counselors and educators to give prospective borrowers accurate information on what their debt load could mean to them down the road.

"The beginning of that process -- the borrowing -- looks a lot different than the end," Donald said. "It would be better to bring that wisdom (to bear) before the start of the process -- give them some kind of reality check."

P-I SPECIAL REPORT

The Seattle P-I's ongoing series "Hard work, hard times: The plight of Puget Sound's working poor" examines the lives of those who struggle to make ends meet even though at least one family member works full time.

Today, we focus on the growing burden of student-loan debt.

To read more stories in this series, go to www.seattlepi.com/specials/workingpoor.