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Graduates receive diplomas, higher debt

Tyler Drumheller is the kind of candidate every employer should want.

And he better be.

He estimated he’s about $55,000 to $60,000 in student-loan debt. Drumheller, a fourth-year in mechanical engineering, doesn’t just deserve a job; if he’s going to pay interest on his loans in six months, he needs one.

Drumheller isn’t alone. The national class of 2011 is the most indebted to ever graduate from U.S. colleges and universities, according to the U.S. Department of Education. 

Borrowers receiving their bachelor’s degrees racked up, on average, an estimated $27,200 in student loan debt, said Mark Kantrowitz, publisher of Fastweb.com and FinAid.org. Last year, that number was $25,800 and 10 years ago, it was about $17,600.

Tuition alone, adjusting for inflation, has increased about 1.5 to 2 percent annually for the past 70 years, nearly tripling since World War II, said Lawrence Bowdish, an adjunct professor at American Public University and former OSU Ph.D student.

“The debt of 18 to 22-year-olds is going to increase because of that, because things aren’t getting less expensive. Schools aren’t going to be offering more scholarships,” Bowdish said.

Many OSU undergraduates will feel the pressure of climbing costs this fall as the university plans to raise tuition 3.5 percent for the 2011-2012 academic year. According to the 2010 Common Data Set from OSU’s Office of Institutional Research and Planning, 59 percent of OSU seniors graduated between July 1, 2009 and June 30, 2010 with debt in federal and private loans. The average debt of these borrowers is more than $22,800.

While a five-digit debt burden looks like a big number to manage, college graduates are typically well positioned to repay their debts, said Tally Hart, senior adviser for OSU’s Economic Access Initiative. In fact, only 5 percent of OSU students who began repaying their loans in 2008 defaulted within three years, according to the U.S. Department of Education.

“And that’s usually because of a missed address, just a process issue,” said Hart.

Hart said it is important for students to update information because the consequences of defaulting on one’s student loans are severe. If defaulted loans are government-backed, the federal government can garnish your wages or keep your tax return. Defaulting on private loans would ruin your credit score.

“It’s probably the most serious financial problem you can get into. I mean, short of robbing a bank, because you can never get rid of it,” Bowdish said. “That default will be on your report forever.”

What’s interesting about student loans, Hart said, is that the people who are most likely to default on their loans are typically the students who borrowed the least and that’s because they never finished their college education.

“If I had to guess — it’s strictly a guess — I would guess that the higher loan level is going to prove to be a good thing, not because I want any students to have to borrow, but if it is an early indication of a higher rate of college completion then everybody will win,” Hart said. “Students will be more able to repay those loans, the nation will benefit from that higher educated populace and it will, in the future, help repay itself by higher taxes.”

Halfway through his sophomore year at the University of Tennessee, Drumheller was overwhelmed and dropped out of school for nine months. Before transferring to OSU the following autumn, he worked at a Target in Rocky River, Ohio. His old job reminds him of the investment he made to attend college — an investment he hopes will pay for itself and more.

“It’s just not a very redeeming job at all. You’re not doing anything exciting,” he said. “It’s more I guess, like, kind of a self-fulfillment thing, where you feel like you’ve actually made something of yourself. And obviously down the road it comes with pretty good financial benefits.”

Drumheller has financed his college education on his own, through work and student loans. He said he’s “not really worried” about paying off his debt. Drumheller clocked eight to 12 hours in Scott Lab daily, so he knows a thing or two about hard work. He’ll graduate with two-quarters-worth of co-op under his belt, “decent” grades on his transcript and a knack for 3-D modeling.

Although he has applied for about 20 jobs, gone to six interviews and received a handful of rejections, which he’s learned to take in stride, he’s confident he’ll find a job and repay his federal Stafford Loan and three private loans.

“I had an interview today and I had one last week, one the week before and a company already emailed me back about an interview,” he said. “So it’s promising at least.”

The unemployment rate for college graduates under 25 has improved over the past year, from 7.5 percent in April 2010 to 6.7 percent in April 2011, according to the Bureau of Labor Statistics. Data from the National Association of College and Employers also shows that employers intend to increase the hiring of entry-level college graduates by 13.5 percent in 2011.

But for many college students, the future doesn’t seem so bright. This year, 85 percent of new college graduates will move back home with their parents, according to a poll conducted by consultant firm Twentysomething Inc.

“I think we face a really crowded job market at a very pivotal point in our careers,” said James Grant, executive vice president of OUR TIME, a membership organization mobilizing Americans under 30. “Not only is this an issue for college graduates this year, but it’s faced the class of 2009, my year, and the class of 2010, as well as all of the people that were either unemployed or underemployed for the past year or the past two years and are still candidates in the job market.”

Grant Barnes, a fourth-year in radiation therapy, said he will have to resort to moving back home if he doesn’t find a job in his field and can’t afford to make payments on his $20,000 debt. Barnes has to repay $9,000 in subsidized Stafford Loans, and to his parents, who also lent him money.

To keep his head above water and out of his parents’ house, Barnes will continue working as a student research assistant at the OSU Comprehensive Cancer Center this summer and hopefully pick up another job in landscaping. But he said his prolonged experience at the Comprehensive Cancer Center won’t make him a more marketable candidate in radiation therapy.

“I’m really scared just because our field’s kind of flooded,” he said.

There’s no stopping student debt from rising, unless the federal government decides to “control the price of college,” Bowdish said. “That’s politically off the table.”

But students like Barnes can be better equipped to deal with their debt.

Financial education at the university level is critical to helping students keep their debt in check.

“I think it’s absolutely the university’s responsibility to provide financial literacy, financial education,” said Kate Trombitas, associate director of the Student Wellness Center. “I think that it gradually better prepares students. It keeps students in school who may otherwise be dropping out due to financial difficulties or simply the stress from their finances.”

Money is the second-leading cause of stress on campus, after academics, according to the National College Health Assessment report. Drumheller can attest to this financial stress. He even noticed his GPA jump last Autumn and Winter quarters when he had enough money to easily pay his bills.

“It takes its toll to where you definitely can’t give your 100 percent,” he said. “Like trying to do your homework or study or just in general when you’re at your house and you have your free time. It’s still always on your mind that your bills are pretty close to not getting paid.”

To aid students’ mental and financial health, the Student Wellness Center offers about 100 workshops each year related to money management. The center’s most popular
initiative is Scarlet & Gray Financial, a free, confidential financial-planning firm staffed by OSU students trained to offer financial advice and education to their peers on topics like credit, budgeting, major purchase planning and of course, debt repayment. Students can also take basic financial management courses for credit through the College of Education and Human Ecology and Fisher College of Business.

“I would recommend that students, or graduates create a budget pretty quickly,” Trombitas said, “because they’re going to be managing a lot when they’re graduating, getting that first paycheck, paying back those loans for the first time.”

Trombitas’ advice for graduating seniors, knee-deep in student-loan debt, is to pay attention during exit counseling and to visit her office should any questions or concerns arise.

“Don’t be afraid to ask questions,” she said. “You may feel like everyone knows this except you but it’s not the case.”

After graduation, Hart recommends paying off higher-interest private loans first, before tackling unsubsidized federal loans and later, subsidized federal loans. If you’re unemployed and having trouble making your federal debt repayments, Hart also suggested using forbearance to postpone or reduce your payments. Otherwise, you risk defaulting because you “didn’t know the right steps to take.”

As Trombitas said having the knowledge is half of the battle.

“I think that college is always a worthwhile investment. I think that if students over-borrow or borrow more than they probably really needed to, it may prevent some of those graduates from taking the jobs that they really want to take because they can’t afford to,” Trombitas said. “So they may have to take a job that wouldn’t necessarily make them as happy or be as fulfilling in order to make those ends meet.”

Of course, it’s better to land a job — any job — than none at all.

“My first goal is definitely automotive design, which is something I was really into,” Drumheller said. “It’s kind of spawned now to where I just want to have a professional career, something rewarding and always changing.”

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