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VOL. 39 | NO. 5 | Friday, January 30, 2015

A country drowning in student loan debt

$1.2 trillion owed creates long-term problems for auto industry, home sales

By Sam Stockard

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Three and a-half years after graduating from the University of Tennessee-Knoxville, Yasameen Hoffman is still trying to land the kind of full-time job that will help her start paying off her student loan.

The 25-year-old from Knoxville majored in vocal performance and music education, hoping to work with Teach for America when she graduated in 2011. She sings regularly around Knoxville, even performing with the opera and at Bonnaroo in 2013, and has held a variety of jobs, now working as a law firm receptionist.

Fortunately for Hoffman, she got out of college with less than $20,000 in debt. She earned enough scholarship money that she needed between $3,000 and $5,000 in Stafford Loans (a form of federal financial assistance) each year to cap off tuition and pay for housing and meals, all while working part time.

With that college debt hanging over her head, Hoffman calls the experience “bittersweet.”

“That, to me, is frustrating because it really is an exorbitant amount of debt before you even start your career,” Hoffman says, noting she could buy a Mercedes-Benz or make a down payment on a nice house with that kind of money.

But she also opted to defer payments on her student loan because she was worried she couldn’t make them consistently and her credit could suffer if she defaulted.

The aspiring vocalist is hardly alone.

Hoffman’s debt is a tiny part of $1.2 trillion owed nationally on student loans as of May 2014, topping even credit-card debt. Seventy percent of college seniors who graduated in 2012 had student loans averaging $29,400.

Hoffman’s debt load is lower than most. The average debt for 2013 Tennessee graduates was $24,585, ranking the state 35th nationally. About 57 percent of graduates hold debt, which ranks 34th nationally, according to the Project on Student Debt.

The average debt of UT graduates in 2013 was $23,729, with 53 percent of graduates holding debt, and $22,616 at MTSU.

Tennessee State graduates carried average debt of more than $30,000, while Tennessee Tech grads had debt of $17,000 and University of Memphis grads held a debt load of $24,400, Project on Student Debt figures show.

Debt averaged $20,300 at Vanderbilt University, which costs about $63,320 per year, the school’s own estimate shows.

The rub

U.S. Rep. Steven Cohen, co-sponsor of legislation to help people avoid financial ruin from college loans, says it’s a critical issue for the nation, in part because of the affect it has on the ability of young people to buy big-ticket items such as cars and homes.

Coby Sherlock, right, an assistant enrollment counselor at MTSU, helps sophomore Marina Phillips try to add a class to her schedule.

-- Michelle Morrow | The Ledger

“Our nation’s economic recovery has not kept pace with the ever-skyrocketing costs of higher education, and the Tennessee General Assembly has failed to support Tennessee students or families with its continued education cuts and refusal to increase the HOPE Scholarship or the ASPIRE Grant,” says Cohen, a Memphis Democrat who formerly served in the state Senate and fought for years to pass legislation legalizing a state lottery, which funds the lottery scholarship program.

In addition, he says Gov. Bill Haslam “raided” $300 million from the lottery fund that could have helped low- and middle-income students and funneled it to more affluent students through his Tennessee Promise program, which provides free education at the state’s technical and community colleges.

“These and other problems have contributed to a ballooning student debt problem,” Cohen says, pointing out there are no signs of the trend reversing.

“Our state and our country must do more to ease the burden of student loans on our citizens.”

State Rep. Craig Fitzhugh agrees that the level of student loans “absolutely” has an effect on the economy statewide and nationally.

The Ripley Democrat points out that the Legislature previously provided about 70 percent of college funding, compared to 30 percent paid through tuition and fees.

Over the last few years, however, the Legislature has reversed those figures, funding 30 to 40 percent of higher education in the state budget and putting 60 to 70 percent of the burden on students, Fitzhugh says.

Passage of the Complete College Act in 2010 “exacerbated” the situation, Fitzhugh contends.

Instead of funding universities based on enrollment, the act rewards universities for reaching student retention and graduation benchmarks.

Yet the Legislature hasn’t fully funded the act each year and, as a result, the state is $20 million to $25 million short on the Complete College Act, Fitzhugh says.

Bleak outlook

Fitzhugh says he hopes higher education money will be restored in Gov. Haslam’s upcoming budget plan, but he also realizes the governor wants to make good on promises last year for K-12 teachers’ pay raises that never materialized.

“I think it should be a priority item that we can at least start to close that gap,” Fitzhugh adds. When universities continue to raise tuition, payments fall squarely on students and their parents.

And even though the loans allow students to continue going to school, they’ve got a big responsibility waiting on them at graduation, he notes.

“It’s totally burdensome,” Fitzhugh explains.

However, in a recent Tennessee Board of Regents meeting, higher education officials informed the governor that they’re likely to raise tuition again next fiscal year because revenue projections are flat.

Officials said higher education hasn’t gotten a substantive state funding increase in three decades, the Associated Press reported.

Lyndsey Bickel reads while students walk past the Financial Aid Department at MTSU.

-- Michelle Morrow | The Ledger

University of Tennessee economist Bill Fox told the Board of Regents, which oversees schools such as MTSU and Memphis, the state is seeing less than 3 percent in revenue growth and, with inflation at 2 percent, the net growth is 1 percent.

Board of Regents Chancellor John Morgan said tuition increases are reaching the point of being “counterproductive” because raising rates drives away students.

What the numbers show

Over the last decade, higher education funding stood still while tuition went up nearly 100 percent.

“We are more tuition-dependent now than before the recession,” says Russ Deaton, interim executive director of the Tennessee Higher Education Commission.

State funding for higher education increased from $1.12 million in fiscal 2004-05 to $1.34 million in 2007-08 before it fell for three straight years to $1.06 million in 2011-12. Since then, it has climbed little by little to $1.2 million, figures from the Tennessee Higher Education Commission show.

Meanwhile, average university tuition and fees have jumped 7.06 percent annually over the last 10 years, nearly doubling from $4,214 in 2004-05 to $8,335 in this year, THEC figures show.

Colleges of applied technology went up 6.93 percent annually, from $1,752 in 2004-05, while community colleges jumped 6.17 percent each year, from $2,193 to $3,992 this year.

But students who obtain Tennessee Promise scholarships will be able to attend those schools free of charge.

The cuts THEC saw in recent years were deeper than any reductions it faced for decades, Deaton says.

With the state paying about 33 to 40 percent of higher education’s operating funds, Deaton adds, “We are trying to find cost savings and pass them on to students.”

Even with more demands being placed on the higher education system, it is still producing more graduates with less money and amid inflationary pressure, he notes.

Deaton acknowledges that tuition increases require students to borrow more money to attend college, but he also points out that the Tennessee average is lower than the national rate.

A $25,000 debt requires payments of about $150 a month, according to Deaton. But while college graduates face a difficult situation in dealing with loan payments, Deaton contends that those who don’t graduate but pile up loans are in an even worse bind.

'Emphasis' on cost shift

Tennessee Rep. Glen Casada, who has two children with college loans, concedes the General Assembly has put an “emphasis” on shifting the cost of higher education from taxpayers to students, thus pushing up the cost of college and student debt.

“The state’s obligation is to figure out how we stop the colleges from going up in double-digit inflation so that it becomes prohibitive for young people to go to college,” says Casada, a Franklin Republican and chairman of the House Republican Caucus.

“The question is: Who pays for my stuff? Do I pay for it myself or do I have the taxpayers pay for it?” Casada asks. “Maybe we need to work with the universities in Tennessee and say, universities, let’s figure out a way that you don’t elevate, even though we’re putting more burden on you.

“Maybe there’s places to cut instead of increasing tuition. Just a thought.”

State Sen. Bill Ketron, a Murfreesboro Republican who chairs the Fiscal Review Committee, calls the situation a state and national problem.

“No one wants to see tuition increases or our students incur debt as they complete their education,” Ketron says. “No doubt, meeting our higher education needs is a huge public policy challenge as we do not need to raise taxes on our citizens as many already find it hard to make ends meet.”

Ketron points out that Gov. Haslam is committed to improving higher education and increasing the college graduation rate through programs such as the Tennessee Promise, which helps students who don’t receive HOPE Scholarship money.

Ketron says he is waiting for the governor’s recommendation this session to hold tuition rates down.

Looking for solutions

Gov. Haslam’s Drive to 55 initiative, an effort for 55 percent of Tennesseans to obtain a degree or certificate in 20 years, is part of the state’s effort to bolster higher education, Deaton says.

THEC also is focusing on preparing Tennessee’s workforce for the needs of employers across the state. Much of that involves Tennessee’s Colleges of Applied Technology, but it also filters down to liberal arts training at the state’s universities, he says.

Solutions are:

  • Informing students about the impact of education loans.
  • Encouraging people to set up college savings programs.
  • Using the Tennessee Promise program and the HOPE Scholarship.
  • Working to keep the state’s costs as low as possible so students can obtain a degree without accumulating “massive debt.”

Meanwhile, students can get a deferment or forbearance that lets them temporarily delay or trim payments for federal student loans. The idea is to postpone or reduce payments to avoid defaulting.

The federal government might pay the interest on Federal Perkins Loan, Direct Subsidized Loan and Subsidized Federal Stafford Loans. The feds won’t pay interest on unsubsidized loans or PLUS loans, and if graduates don’t pay interest during deferment, it could be added to their principal balance, making the total amount they pay higher.

And, deferment only delays the inevitable.

Career search

When Hoffman was graduating from high school, she looked at major universities out of state but would have had to borrow much more to go for four years.

“I might as well have gone to Penn State and had $40,000 in debt or Harvard or Emory instead of staying here,” she says.

UT-Knoxville’s Career Services division offers students an array of service and resources to assist with post-graduation plans.

In students’ first year, the office reaches out to help plan a career path and encourages them to obtain skills and experiences employers look for, including internships and other work experience, according to Stephanie Kit, interim director of Career Services.

Students can meet with counselors for resume reviews, job search strategy advice and go over interview skills, she adds.

They are also urged to use the Hire-A-Vol system to find job opportunities. The university also holds career fairs and on-campus interviews during the school year to connect students with employers.

Hoffman says she has considered going back to school to earn her master’s, but that would add to her student debt, and she doesn’t want it to grow any worse.

Hoffman feels she was led to believe a traditional course of study at a four-year university would get her a career in her field.

But with the job market tight and many of the people her age entering the service industry, she no longer feels a bachelor’s degree guarantees a solid job. As a vocalist, she also says she needed more training at UT-K to learn to market her skills.

“You have to package yourself like a product,” she explains.

With things not working out yet, her advice for today’s students is to do volunteer work or work abroad so they can make a better decision about their major. Instead of choosing something they love, students should consider a field that will generate higher pay.

A technical program at a community college would have given her more earning power, she points out.

“You can get a degree in underwater basket weaving, but nobody’s going to pay you for it,” Hoffman says.

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