'Til Debt Do Us Part
Is the burden of student loans worth the private education?
By Hannah Loesch
There are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt in the U.S. alone. The average student in the class of 2016 has $37,172 in student loan debt, according to Forbes.
Betty Morelli, senior counselor of Student Financial Services at Hofstra University, says about half of the undergraduate students at Hofstra took out an education loan for the 2018-2019 academic year. Among the freshman, 54 percent took out loans; sophomores 52 percent; juniors 53 percent; seniors 49 percent.
Much of Morelli’s job is to yield questions from students about common myths that surround taking out an education loan, and provide the realities to these myths.
“I think sometimes students, believe it or not, are not aware that they actually have to repay the loans someday,” said Morelli. “They consider it part of their financial aid award package. So we go over things, especially with new students, and specifically make sure they’re aware that it’s a student loan.”
Another false assumption that Morelli often hears from students is that private loans have a much higher interest rate than federal loans. According to Morelli, federal loans adjust their interest rates every July 1st, so depending on what the students loan rate is for that particular year, there are times where private lenders offer better rates.
Antoine Oakley is the Director of Corporate Communications at Sallie Mae, a company which offers private education loans, college-planning tools, and online banking. According to Oakley, nearly 374,000 families used Sallie Mae as their private student loan provider in 2018. Oakley says a common false belief he hears from students is that they should borrow as much as they can.
The reality, Oakley says, is that a student should only borrow what they need and can afford to pay back. “Your federal or private student loans should fund your education, not your lifestyle,” said Oakley.
Oakley says it is a myth that most college graduates are having a hard time paying back their student loans.
“On the contrary, one of the biggest factors in successfully paying back student loans is graduating from college”, he explained “In fact, those students who didn’t graduate, and in many cases, have a relatively small amount of student loan debt, are most likely to default [fail to pay back a debt according to the initial arrangement].”
For Morelli, showing students they have options when it comes to paying for school is top priority–as is making sure each student is realistic with which options they’re able to take advantage of.
As for the opportunity to apply for loan forgiveness, Morelli says it is not a reality for most students.
“Students need to realize that when the apply for loan forgiveness, it’s not for the total loan amount”, said Morelli. “It’s for what’s left after you have made ten years of qualifying payments.”
In order for a student to qualify to spread their payments out long enough for there to be a remaining balance to forgive, they would have to be approved to be in a very limited repayment plan, called an Income-Driven Plan. For these plans, the government looks at your annual income level and determines what your payments are. Only if the student’s payments are low enough to spread out over 120 payments, or ten years, will loan forgiveness work to their advantage.
“I’m not saying the government leads people on, because the information’s there, but people are under the assumption that loan forgiveness means, ‘As long as I work in one of these low-income areas, or public service jobs, non-for-profits, my loan will be forgiven”, said Morelli says. “And it’s not the case. Only a portion of it will be forgiven.”
Alex Wilson is a California-born man who received his Master of Business Administration degree from the University of Southern California, a top 20 U.S. business school.
Perhaps not surprisingly, states with larger populations have higher aggregate student loan debt, according to Forbes.
California, Florida, Texas and New York are among the four highest states for total student loan debt outstanding among resident borrowers. These four states represent more than 20 percent of all U.S. student loan borrowers.
According to Wilson, the University of Southern California business program cost him $120,000, but with federal loans, the required interest rate is 7.9%. After interest, his business education compounded to $150,000.
Not a small number–but Wilson, being a business student, found a way to rationalize this.
“I felt I could stomach $120,000 mainly because the average salaries post grad were $120,000. That was my sanity check,” Wilson says. “Like, it wouldn’t make sense to go into $120,000 debt for a $30,000 salary. Conversely, if you can show me a job that pays $300,000 for $120,000 debt, I’d be very interested!”
From his own experience with student loans, Wilson has learned to “think like a business person and really scrutinize whether the interest costs and knowledge and credibility will cost less than the expected job and job growth in the future.”
Wilson has since refinanced to a four percent loan and says he should have it repaid within a couple of years. The decision to take out an education loan to go to his desired school, Wilson says, was the right one.
“The main goal of going to a good school is to get in front of good employers paying good salaries,” Wilson says.
After earning his MBA, Wilson interviewed at multiple management consulting firms, and now works out of Denver for
PricewaterhouseCoopers (doing business as PwC). Their starting salary for MBAs at the time of Wilson’s employment was $140k.
“I would tell people to make sure that the juice is worth the squeeze,” explained Wilson. “Student loans are a business looking to trade credit for money. Universities are businesses looking to trade their name and knowledge for money.”
Helping students determine whether the juice is worth the squeeze is what Morelli does best.
“What I tell students, especially freshman, is to think about where you wanna be four years from now”, explained Morelli “What school is gonna get you to that goal? If
Hofstra’s the school that you think’s gonna get you the job that you want in four years, then that’s something that helps you realize that it is an investment that’s worth paying into.”