Student loans puts college graduate into deep financial hole

Student loans were a fact of life for Marjorie Dillon and she was OK with that — even though she didn't keep close track of how much she borrowed or completely understand the agreements. She and many of her former classmates at Robert Morris University in Moon relied on loans to pay tuition and expenses.

Ms. Dillon, 26, of Coraopolis, was the first in her family to attend a four-year university and loans were the only way to finance the business administration degree that would be her passport to a better life.

But six months after graduating with her bachelor's degree, Ms. Dillon is making $7.25 an hour plus tips serving beer at a bowling alley, working 25 to 30 hours a week. She's nearly $120,000 in debt, behind on her bills and, despite her best efforts, cannot find a better job. Her 80-year-old grandmother co-signed for the loans and could lose her house in North Fayette if the debts are not repaid.

"Honestly, I wouldn't have gone to school if I knew I would be in debt the rest of my life," Ms. Dillon said. "I won't be able to ever own anything. If you look at my credit report, it's (loaded) with Sallie Mae loans."

The financial crisis she is facing provides a snapshot of the worrisome outlook confronting many college graduates who find themselves juggling a mountain of student loans and other forms of debt in the early stages of their working lives.

Her case might be considered a worst-case scenario. The average cumulative debt for four-year college graduates has reached $22,656, according to Finaid.org, a leading Web site for financial aid information.

Some relief is on the way thanks to a new federal student loan repayment plan that will set monthly payments based on how much borrowers make and the size of their families instead of how much they owe. In some cases, graduates will make no monthly payments if their income falls below a certain level. And after 25 years of payments, any remaining balance is cancelled.

But the reduced income repayment program is only available for federal student loans under Stafford, Grad Plus and federal consolidated loan programs.

Ten of Ms. Dillon's loans totalling $108,639 were private signature student loans through the SLM Corporation — commonly known as Sallie Mae — which cannot be consolidated, forgiven, deferred or erased in bankruptcy. Two of her loans, totalling $9,000, are federal government loans.

Even if the variable interest rates stay frozen or never go up during the 25-year life of the loans — which is unlikely — her monthly payments on the $117,600 borrowed will climb to more than $1,100 and she will end up repaying at least $270,000.


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Help for Forms and Repaying Loans

Applying for financial aid is about to get a little less annoying, and loan repayment will get more affordable for some students, thanks to recent initiatives from the U.S. Department of Education.

In June, the department announced that it would streamline the electronic version of the 109-question, six-page Free Application for Federal Student Aid. For many years, the FAFSA has been the subject of insults and curses from parents and politicians of all types. But government officials kept making it longer and more complicated to qualify students for specific scholarships and prevent parents from hiding income.
Research shows that the form has become so complex and frustrating that as many as 1 million students are giving up in disgust, thus possibly missing out on financial aid that would help them pay for college. In fact, many of the questions seem silly: After requiring students to enter their date of birth, for example, the 2009 paper form also asks students whether or not they were born before Jan. 1, 1986. Students also have to answer several repetitive questions about their marital status and the amount of school they've completed.

Repetitive questions will be eliminated from the online version of the form, says Secretary of Education Arne Duncan. Starting in January, the Education Department will also make it easy for students and parents who use the online version of the financial aid form to simply have their IRS tax forms automatically fill in many of the FAFSA questions about adjusted gross income, earnings, and the like, he promises.

Eventually, Duncan hopes to make the form even shorter. He plans to ask Congress for approval to cut out an additional 26 questions about savings, investments, and assets.

The simplification announcement was greeted with cheers by college financial aid officers, politicians, researchers, and others. "This is a great first step," says Marcia Weston, director of the YMCA's College Goal Sunday program, which drafts volunteers across the country to help families fill out their FAFSAs on a few Sundays each winter.

But she noted that many disadvantaged students do not have computer access and thus fill out the paper FAFSA, which will not be simplified. Those who need aid the most might still have to suffer through the most annoying form.


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