News Column

Student loans a growing problem

June 16, 2014

By Jonece Dunigan, The Decatur Daily, Ala.

June 16--When Haley Hummer, a sophomore marketing major at the University of Alabama at Birmingham, was about to graduate from Decatur High in 2013, she wanted to pack her bags for William and Mary.

She dreamed of walking along the historic campus, a public research university in Williamsburg, Virginia.

"Neither one of my parents went to college," Hummer said. "At a young age, they always made sure that education was really important. They gave me goals and encouraged me to do better."

Hummer has been making her own money since she could work. Before that, she would make a little change here and there by baby-sitting for friends and family. With her mother, Melissa, being an employee for Steak-Out and her father, David, a coordinator for Big Heart Pet Products, the cost of tuition became her family's top consideration.

"I just heard so many stories about graduates getting loans between $150,000 to $250,000 and up, and getting out in the work field and only making $50,000 or $80,000 a year," David Hummer said. "So there's a big offset there. That was my biggest concern -- having that hanging over her head for who knows how many years."

David Hummer's fears are valid. According to the Consumer Financial Protection Bureau, 40 million Americans owe $1.2 trillion in student loan debt. The Wall Street Journal reports the average class of 2014 graduate will have to pay back $33,000 in student loans, which is higher than last year's $29,000 average.

President Barack Obama signed an executive order last week to expand his repayment plan to loans taken out before October 2007. The 2010 Pay As You Earn plan, which will cap borrowers' monthly payments to 10 percent of their income, only considers loans after that time period. The executive order will be effective December 2015.

Although the president's order expands the plan to as many as 5 million debtors, Derek Berry, economics instructor at Calhoun Community College, believes because of the rising cost of tuition, this plan might not solve the problem.

"As long as cost is rising, it seems like debt is the only way that students can finance it," Berry said.

When Haley Hummer saw tuition alone at William and Mary cost $23,000 annually, she realized her dream was farfetched. She instead decided to go to UAB because it was affordable. She also found it appealing because she originally wanted to be a doctor, and UAB has a strong medical reputation.

"I knew I was going to get loans, but I didn't want to get hundreds of thousands of dollars in loans for getting the same type of education," Hummer said.

$42,860 a year

Leslie Whitley, a retired Tennessee Valley Authority employee, and her husband, Bill, a retired physician, supported one of their four children through college and are supporting three more. Their oldest son, Andrew, 22, graduated from George Washington University this year. When Andrew made the choice, Leslie Whitley said she was shocked to see the school's $42,860 annual tuition.

"It was awful, but we let him follow his dream because we didn't know where it would lead him," Leslie Whitley said. "If he didn't get a lot of scholarship money, it would be impossible to send him there."

The Whitleys had their children's college careers in mind the moment they were born. They stored nest-egg money in a 529 Plan, an IRS educational savings plan created by the federal government in 1996 to help families set aside college funds.

They also monitored the cost of tuition so they would know how much to save. Bill Whitley believes that was the best route.

"We don't have that much anxiety now, because I knew that we had it saved," he said. "The initial goal was to save enough so that they can get a four-year state school paid for. If they choose to go beyond that, then they would have to help out."

Nathan Whitley, 17, is following in his older brother's footsteps by going out of state. Because of his passion for math and biology, he plans to study biomedical engineering at the Georgia Institute of Technology, in Atlanta. Nathan said the out-of-state fee does scare him, but he hopes the quality of education will make the financial stress seem worth it.

"My plans are that since I am going to get a high-quality education, I can essentially apply to any job that I can do and I can succeed. My parents have saved, and so my education is going to be well paid for," Nathan said.

Haley Hummer tried every avenue she could to save money for college. She raised $4,000 through temporary jobs at Point Mallard, baseball park concessions and working at Belk for the winter.

She was so determined to get the scholarship that she attended school with a 103-degree fever to make sure she got an interview, which led to her winning a $2,000 scholarship from the Decatur High class of 1969. Her parents penny-pinched to raise money for her education since the beginning of high school.

Nonetheless, she still took out $10,000 in student loans. Hummer tries to see her financial situation in a different light. In the long run, taking out loans was better than not going to school at all.

"I'm going to have loans, and it's going to be stressful paying it off," she said. "But if I don't go to college, then I won't have as good a life."

21 years to pay

A One Wisconsin Institute study found that the average time for a student to pay off student loan debts is 21 years. USA Today reported 15 percent of borrowers default on their loans within three years. Berry believes the "student debt bubble," as analysts are calling it, will create a short-term domino effect in the economy.

"Student loans help students go to college, and by going to college they're spending money, and that money has an immediate impact on the economy," Berry said. But making college more expensive allows graduates less money to put to work in the economy.

Hummer juggled 15 credit hours of school and 25 hours of work at a retail store when she entered UAB. It was a stressful beginning that led to a couple of all-night study sessions. But all her earnings was recycled into her college education through book rentals, and room and board.

A small amount of Hummer's wages were spent on little things that feed into the economy, such as watching movies or eating out with friends. It's a sacrifice she believes will lead her to a more financially stable future.

"My friends would say, 'It's only $10,' and I would be like, 'Yeah, but those dollars add up,' " Hummer said.

The Consumer Financial Protection Bureau found student loan debt causes a prolonged adolescence in 20- and 30-year-olds. They decide to stay with parents longer rather than sign the mortgage on a new house, or they buy an older model used car instead of a new one.

Berry believes the long-term effects won't be a drain on the economy, but on the educational well-being of future students.

"In today's economy, higher education is crucial. Student debt makes it hard for students to do that," Berry said. "The more expensive it is, the less students are going to do it and they're not going to be prepared. So it's not just the immediate impact on the economy, but in the future the potential students won't be trained and educated in the ways they need to be."

Berry said money spent on new buildings, monuments or parking lots is money lost somewhere else in the school's budget. On the flip side, Berry said, universities feel obligated to have the latest services because students ask for them.

"This is a national conversation that has to be decided. Do you keep colleges on the cutting edge with all the latest stuff which will make it more expensive?" Berry said.

Some universities are trying to find alternatives to tuition hikes. At George Washington University in Washington, D.C., Andrew had a fixed tuition -- he paid the same tuition every year.

Leslie said that was a relief.

"It's shocking how much college costs," she said. "You look at some of these places and all of a sudden you're paying a certain rate that can be really tough to absorb."

Nathan is looking into ways to help. He doesn't have any scholarships, but he's hoping to acquire some by keeping a 3.0 grade-point average. He can gain experience and money by joining a cooperative program, in which some universities allow students to work in their field of study while they do their degree work.

"With the education you get from that, you get a much higher salary, and that makes paying loans off a lot easier," he said. "I'm trying to become as debt-free as possible, but if I'm going to do graduate school, I think that's inevitable."

Opponents to bill

Opponents of the president's payment plan believe it is unfair to have taxpayers pay for students who attain a lot of debt without considering the amount of income they will receive after graduation. Hummer believes student debt should remain a big topic on Capitol Hill.

"I think it's fair to help people, because I can't help the amount of debt that I'm getting because I feel like I have to," Hummer said.

As an instructor, Berry observes first hand how the cost of tuition hurts his students. To make it easier on them, he tries to cut costs wherever he can, such as choosing the less-expensive textbook for the semester.

"In some situations," Berry said, "you get a lot more debt than what you have intended -- more than what you feel comfortable with. But people make choices like that, and sometimes they have bad outcomes."

The final days of his senior year, Nathan heard some of his peers trade in their dream school for a less-expensive option. He saw hard workers who stayed up all night studying for the ACT end up not getting the score required for the scholarship they needed. Although he believes their effort will pay off somehow, he hopes legislation to lower the cost of student loans will continue not for himself, but for the benefit of all.

"People need to pay for their education, and education is so important for America with the rest of the world getting more and more industrialized, especially with China having a bigger population," he said. "... So to get those industries that no one else in the world can compete with, you need to have a really good education base. In order to pay for that, student debt should be a focus."

Jonece Dunigan can be reached at 256-340-2442 or Follow on Twitter @DD_Dunigan.


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Source: Decatur Daily (AL)

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