By: Scott Cohn
December 21, 2010
The cost of a college education is rising faster than the cost of medical care and as much as three times as fast as consumer prices in general. But that's just the beginning of the price of admission.
This is the story of a debt crisis few are talking about.
Americans now owe more on their student loans than they do on their credit cards -- a debt fast approaching $1 trillion with no end in sight.
Students borrow because they see little choice. A college education, after all, is a key to success. That, it seems, is an article of faith.
For Rick and Tami Tuipers, of the Chicago suburb of Tinley Park, Ill., the world revolves around their kids.
"We've committed to our children's education from day one," said Tami. "That's the commitment we made when they were born."
Zach is a high school sophomore and, at 15, the youngest in the family. Shelby, 18, is a senior and interested in science.
We've encouraged them to go to college," said Rick. "At least try a semester, a full year."
The Kuipers' nest is already half-empty. Chris is a college freshman, studying engineering at Calvin College, a private school in Grand Rapids, Mich. Kaylee is a junior, also at Calvin, where she recently switched her major to international development after a trip to Africa left her with a keen interest in travel.
"We went around and we visited a bunch of different tribes and villages and just learned about what they were doing for development," she said. "We got to do some fun things, like a safari. And we just, like, studied the land."
It hasn't been easy for the Kuipers to save for college, especially after putting their kids through parochial school. Rick drives a garbage truck, at work every day before dawn. Tami commutes an hour each way to a law office in downtown Chicago, where she's a paralegal.
Like the majority of American families, the Kuipers will borrow money to pay for college. A lot of money. They figure the total -- for each child -- will come to about $80,000. But for Shelby, who's been applying for college, that $80,000 figure never came up.
Two-thirds of American college students will graduate with a sizeable debt; for the class of 2009, the average debt was $24,000. Add loans for graduate school and parent loans on behalf of their kids and the Kuipers' family estimate of $80,000 per student is typical, according to Lauren Asher, who directs the non-profit Project on Student Debt.
"The need to borrow has grown for all types of students at all types of schools," Asher said. "And the amount that students are borrowing is driven by the share of cost that students and families are expected to cover after aid. Now those costs have risen faster than family incomes, faster than available grant aid."
America's student debt at the end of 2010 is nearly $880 billion. That number is growing by more than $2,800 dollars per second.
But most students, like Kaylee Kuipers, don't dwell on the numbers.
"I don't really know how much (debt) I have," she said. "My mom handles a lot of it for me. ... I just feel like I'm in the career field that I love, so it'll somehow work out."
For a growing number of graduates, though, it's not working out -- especially in an economy where well-paying jobs for college graduates are in short supply. Student loan defaults have doubled in the last five years, according to the U.S. Department of Education, and are now approaching nearly a quarter-million defaults a year.
The official student loan default rate, according to the government, is now seven percent. That rivals the default rate for credit cards (8.8 percent) and home mortgages (9.1 percent). Because the government is lending most of the money, every default leaves the taxpayers on the hook.
The schools keep the money, the students keep the debt, and the taxpayers lose," said Sen. Tom Harkin, D-Iowa, who chairs the Senate Education Committee. "There's a lot of similarities between what's happening with student loans ... and the housing crisis."
Alan Collinge, an activist and author, who drew on his own student loan default to found the group StudentLoanJustice.org, says the student loan crisis is potentially far worse than the mortgage crisis.
"A defaulted home mortgage borrower -- and don't get me wrong, it's a horrible outcome -- they walk away from their house wearing a barrel and not much else," he said. "In the case of student loans, there is no walking away."
Unlike most other forms of debt, student loans carry almost no consumer protections and little ability to refinance. By law, they can't be wiped out in bankruptcy. Those laws were passed in response to the last student loan crisis in the 1980s. But Collinge believes it created a system he calls predatory.
"These powers would make a mobster envious," he said.
If you default on a student loan today, you could lose everything.
Kyle McCarthy, 28, lives in San Francisco. He has a master's degree, $72,000 in debt and, he says, no way to pay it back.
"I can't get out," he said. "I'm about to lose my apartment. And my phone's about to be turned off in a couple days. And I have negative money in my account."
McCarthy had hoped to turn his passion for soccer into a career in physical education. But four months after graduation, in a pickup soccer game, he blew out his knee that required major surgery.
Unable to work for months, with medical bills piling up, his loans went into default. Now, the collection agents call day and night.
"I've tried to work out anything for them," he said "Like, 'I can pay this amount of money. I can pay $50 a month.' And it was, 'No.' It was, 'You need to pay the full amount now or, we're just going to take it out of your paycheck.'"
Student debt can even outlive the student.
On Nov. 3, 2009, Ralph Grande and his wife, Joan, lost their only child in an automobile accident. Vincent was weeks away from taking his exam to become a stockbroker when he was killed.
"Does any parent ever bring a child into this world thinking that they would outlive them?" Ralph said. "God, no. God, no."
Ralph and Joan soon learned that not only had they lost their only son, they were on the hook for more than $81,000 in student loans that Vincent had borrowed through New Jersey's state student loan program.
"What they told us was, 'Well, you co-signed. Too bad,'" said Ralph. "And the longer it takes you to make a payment, the more the interest is going to accrue and the higher the payments are going to become."
Ralph is a car salesman and Joan a schoolteacher. Their personal tragedy has been compounded by the prospect of financial ruin.
"Where am I going to go from here?" said Ralph. "Where do we possibly come up with that kind of money?"
That question is being asked by millions of American students and families.