Student loan debt is a scary subject for both students and alumni at the University of Texas at Arlington, said Shakeela Hunter, director of the Student Money Management Center.
“They don’t want to think about it,” Hunter said. “We help them deal with the fear.”
In Central Texas, mom Joan Neppl-Wilhite has navigated student loan applications, extended retirement plans and even bought a few lottery tickets to help her two children in college.
Most recently, the single mom put a plea on GoFundMe.com for part of her daughter Marissa Wilhite’s estimated $60,000 tab to attend Texas A&M University.
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“You have to be creative or your kids are going to get creamed,” said Neppl-Wilhite, 50. “You are walking away with a $60,000 bill in your pocket. I’m thinking, ‘My God, how do you even make it?’ It’s gotten out of hand.”
Amid rising college costs, the country is seeing a surge in student debt and in delinquency rates. The combination, lawmakers and policy experts say, has led to a new kind of debt crisis — one that could become a long-term threat to the economy.
The U.S. student loan debt market, which grew 7.1 percent to a record $1.2 trillion last year, is now the second-largest form of consumer debt behind housing, according to the Federal Reserve Bank of New York. It’s nearing the size of the $1.3 trillion subprime-mortgage market that helped spark the last recession.
“There’s a lot of dynamics that are very different here,” said Garrett Groves, economic opportunity program director at the Center for Public Policy Priorities, which has spotlighted the issue in Texas. But “when you’ve got a bowling ball of $1.2 trillion, how might that knock over some of these other economic foundations?”
The effects have been wide-ranging: Record numbers of students are returning home as they delay economic and personal decisions, from buying homes to getting married. Many say they are also reconsidering their career prospects.
Experts are concerned that the crisis will widen demographic gaps on college campuses, as minority students and those from low-income families face tougher choices to access funding.
“My family doesn’t have a whole lot of money to donate towards college,” said Mohamed Bayo, 18, of Pflugerville, who is attending his first year of college. “It’s a lot of money dealing with college.”
Loan struggles hit home
The UT Arlington center, which was created in 2012, is the campus’s answer to federal mandates to colleges and universities to offer more financial literacy for students.
Hunter said debt isn’t an easy topic for students and alumni. “It is embarrassing for anybody,” she said.
When they seek help, some students are grappling for the first time with debt that seems daunting, while others want to know how quickly they can start paying it down. Some didn’t realize that federal financial aid has to be paid back, Hunter said.
Bayo, a first-year student at Austin Community College, visited his financial aid office a dozen or more times over worries about borrowing money. He lives at home to save money and help his single mom.
“I definitely know the grants are going down,” he said. “And I don’t want to be stuck with too much.”
Nationwide, student loan debt became a more pressing issue during and after the recession that started in late 2007, Hunter said.
Parents lost jobs or had pay cuts and had to tap college savings, so students started borrowing, she said. At the same time, tuition rates were increasing, she said.
Texas has seen the default crisis firsthand as tuition rates surge, fueling debt levels and delinquency rates.
“Particularly worrying is the fact that rising tuition rates are driving an equally steep increase in college loan debt,” the Texas comptroller’s office said in a recent report. “Many Texas college graduates and former students are entering adult life hobbled by years and even decades of crippling debt.”
In 2012, 20.5 percent of the state’s student loan borrowers were more than 90 days delinquent, surpassing the national rate of 17 percent and marking the 10th-highest rate in the U.S., according to the most recent figures from the Texas comptroller’s office.
“That’s where Texas could be doing a lot better,” said Groves, the policy analyst.
Experts said a combination of higher fees since tuition deregulation and a lagging grant program is fueling the increases.
As of 2014, Texas students owed an estimated $75.6 billion in college loan debt, up about 7 percent from the previous year.
Texas tuition rates — once among the most affordable in the country — are now catching up to the national average and greatly outpacing healthcare prices, income, inflation and housing prices.
In a December report, the Texas comptroller’s office found that in-state tuition and fees at four-year public universities had grown 344 percent since 1990. By comparison, California had seen a 226.1 percent increase.
Meanwhile, Texas ranks second to last among the six largest states for state grant aid, according to the Round Rock-based nonprofit Texas Guaranteed Student Loan Corp. — known in the industry as TG — which is leading extensive studies on the crisis.
As a result, 60 percent of Texas student aid comes from loans, compared with the national rate of 50 percent, TG found.
“We have much greater reliance on student loans,” said Jeff Webster, TG’s assistant vice president of research and analytical services. “Compared to states like California, we don’t have as much grant money per student, especially given our need.”
Delaying, shaping futures
As the student loan crisis grows, more young Americans, dubbed the “boomerang generation,” are returning home as they retreat from the housing and auto markets and even put off plans to marry.
In 2014, a record 11.7 percent of women and 17.7 percent of men ages 25 to 34 were living with their parents, the U.S. Census Bureau reported.
Before the recession, young student loan borrowers were likelier than nonborrowers to have a home or car loan. That trend reversed by 2011, and now those borrowers are less likely to have a home or car loan.
“There is only so much debt that any of us can handle,” Groves said. “So as we make decisions to invest more in student loans, it’s crowding out our other investments in debt.”
Student borrowers also face lower credit scores, which reversed a trend seen before 2008.
“Having a student loan actually is a risk factor now,” Groves said.
The burden is even affecting marriage plans. The probability of marriage falls by 7 percentage points or more for every $10,000 in student loan debt, a 2013 study found.
Leaving students behind
University of Texas student Jan Ross Piedad chose journalism as her major because it offered more scholarships than other communication disciplines.
The San Antonio native, the eldest child in an immigrant Filipino family, estimates that she’ll cover 30 percent of her debt with scholarships and forgivable loans.
“I think of it as Tetris, when you are trying to line up the pieces to get to the bottom [to owe nothing] … while all the blocks are coming at you at the same time,” Piedad said.
Experts worry that fewer minority and low-income students are taking deliberate paths to conquer their debt.
Texas colleges saw Hispanic enrollment fall 28 percent, or 149,790 students, short of 2015 state-directed goals.
Also, the number of Anglo students enrolled at Texas colleges dropped for the fourth straight year, a decline of 31,000 since fall 2010, according to the Texas Higher Education Coordinating Board.
Some say declines are tied to low-income families, who are more risk-averse and face an uphill battle to borrow against the rising tide of tuition rates. These students may delay enrollment, go to school part time or work full time while in school.
“It puts poor people in a real bind,” said Webster, the TG analyst. “They are scared about the amount of debt they may have to incur, and they try to avoid that burden by doing things … that makes them less likely to be successful.”
College dropouts are three times as likely to default, TG has found. For example, the default rate for a community college graduate is 9.2 percent versus 26.9 for those who don’t.
The consequences are dire for those who fail to meet their debt obligations. Outstanding student loans can’t be relieved through bankruptcy and can be recovered through seized income tax returns and garnished wages.
Seeking a fix
In February, an Austin Community College task force gathered on campus to discuss a new strategy against the student loan crisis: installing a default prevention plan.
The effort is part of a six-year state-directed pilot program to reverse surging default rates. Eleven schools are taking part, including ACC and Tarrant County College.
In conjunction with the Texas Higher Education Coordinating Board, students will be tracked on their payback plans as they receive heavy doses of financial literacy counseling, including face-to-face meetings. It’s a missing piece in the fight against the crisis, experts say. TG is administering the program.
“A lot of the default prevention efforts occur after students have left school,” Webster said. “This is trying to create a system that will … have students make wise decisions while they are in school.”
Meanwhile, students and policy groups such as the Young Invincibles, based in Washington, D.C., are lobbying for relief this session. State lawmakers are considering a 4.5 percent funding cut to community colleges even as the state’s coordinating board has called for a 13.8 percent increase, the group said.
“It’s the wrong direction to go,” said Colin Seeberger, spokesman for the Young Invincibles, which led a recent student rally on the issue at the state Capitol.
TG and UT are each offering online tools to let students estimate future earnings versus debt based on their college and career plans. Policy groups are also pushing to streamline forms such as the burdensome Free Application for Federal Student Aid.
Addressing students’ needs before, during and after the borrowing process is key to ensuring success, experts say.
“It isn’t just, ‘Go to school and you will be successful,’” Webster said. “But go to school with a plan on how you are going to pay for it.”
Editor’s note: The Debt Trap is a collaborative project by the Star-Telegram, WFAA and the Austin American-Statesman aimed at shining a light on loans that either help the economically disadvantaged or devastate them, depending on whom you ask. This final installment explores student loans.