Student debt burdens recent grads
May 8, 2017
By Emily Leclair
According to Student Loan Hero, 44 million students took out student loans for the 2016-17, school year to attend a four-year undergraduate university. One thousand nine hundred and seventy-two of those students will be graduating from the University of Wisconsin-Whitewater on May 13.
Thomas Uecker is the financial aid coordinator at UW-Whitewater, and helps students with understanding their loan amount and how they will have to pay that loan back after graduation.
“I think a vast majority [of students] will qualify for federal loans,” Uecker said. “There’s a fine line between students that use private loans to supplement their financial aid in what we call gap funding, which would be a private loan or a parent plus loan that would go over and above the loans that they are awarded for financial aid.”
When a student is about to enroll in a four-year university, that student is given the option on how they would like to pay for their education. Sometimes, the student has the money to pay out of pocket for their education, however, students usually end up taking out some type of student loan. Private, Federal, or Perkins loans are three of the most popular loans used by students to fund their education.
According to the Federal Student Aid website, federal student loans are funded by the federal government, and private student loans are nonfederal loans provided by a lender such as a bank, credit union, state agency or school of the student’s choice. Federal loans can be paid back with different payment options, such as a repayment plan based on that student’s entry-level income, however, private loans are a set monthly payment usually spanning over the course of 20 to 30 years of payments.
The average debt amount of a graduate from the Class of 2016 was $37,172 with a six percent rise from the previous ear. The average debt amount for a UW-W graduate from the Class of 2016 is $28,345 according to the university’s Peterson Report, which is compiled every year with that graduating class’ loan amounts and graduating numbers. According to that same report, 1,972 students started as first-time student and received an undergraduate degree between the dates of July 1, 2015 and June 30, 2016. Of those 1,972 students, 1, 565 took out loans to pay for their schooling. This means that 79 percent of students who graduated from UW-W in 2016 had to take out a student loan to pay for their education.
The pressure of loan payments can be a lot on recent graduate about to start their first job out of school.
Nicole Odekirk, from Slinger, Wisconsin, will be graduating in May with a BBA in International Business with a minor in German, and $16,000 in student loan debt.
“I was very lucky that I got really good FAFSA due to my family situation,” Odekirk said. “So my loans were small to begin with, but I have about half saved up to pay off already and I plan to be stingy with money until it gets full paid off.”
Odekirk recently accepted a position as a project coordinator with Misix, a marketing company in Milwaukee, Wisconsin.
Odekirk admitted she has stressed about loan payments, but she is not as worried as she thought she would be.
“I’ve had my moments [worrying], but who hasn’t,” Odekirk said. “I feel better knowing that I have a job lined up to help me stay on track and pay it off.”
The amount of debt that students from UW-W graduate with is also effected by that student’s tuition rate. UW-W has different tuition rates for Wisconsin resident and non-resident students. UW-W’s in-state tuition is $7,680 and out-of-state is $16,000, making the total $20,364 and $28,684, respectively, for one academic year of tuition. This difference in tuition can effect a student’s loan debt significantly. According to the UW-Whitewater statics page, there are 12, 628 total students enrolled for the Fall of 2016 with 9,495 (83.5 percent) of them being Wisconsin residents, and 1,885 (16.6 percent) being non-residents.
Wisconsin and Minnesota state schools have a reciprocal agreement where students from the two states receive in-state tuition rates, so some of the Wisconsin resident numbers are Minnesota residents as well.
Shannon Burback will also be graduating from UW-W in May with a BS in Psychology. Burback is from Lake Zurich, Illinois and will be $80,000 to $100,000 in debt, on top of attending Eastern Illinois University in the fall for graduate school.
“I pay out-of-state tuition and feel as if the cost is getting to high,” Burback said. “I am someone whose parents do not help me financially, so having a $100,000 of debt in my name before I even enter the real world is scary. I think it’s different if your parents help you out, but as an individual with no support, I will struggle to make ends meet.”
Burback, like many other students, required a parent cosigner for her private loans, which can add even more pressure when the parent knows they are on the line if the student cannot make the loan payments each month. Of the 1, 972 graduating students, only 267 of those students had to take out a private loan at UW-W with the average loan amount being $21,539 according to the Peterson Report.
“My mom often brings up them up and she scares me when she tells me how much I am going to owe and how strict of a budget I am going to need to be on,” Burback said. “When I look at the numerical number, it’s very big and I am afraid that at one point in my life I will struggle to make payments.”
Burback has a reason to worry about making the payments. According to Student Loan Hero, 11.2 percent of students in debt go into delinquency or in default, which occurs after a period of 90 days or more has passed without payments being made. Students are given a six-month grace-period, in which they do not have to make payments on their loans. The interest on those loans continues to accrue until the payments begin.
While the tuition amount is what makes student loans so high, it is the interest rates that can potentially add an additional $3,000 to a loan over the course of four years. According to Discover’s website, one of the most popular private loan lenders, interest rates can range from 3.99 percent to 12.49 percent depending on a student’s choice of a variable or fixed rate.
Uecker thinks that some students have a misconception of taking out loans by having a “put it on my tab” mentality, where the student will take out additional loans to help pay for rent, food and other necessities during their four years at college.
“It tends to be a misconception where the student is borrowing the max amount that they’re eligible for so they get their refund and they can pay their rent,” Uecker said. “Their cost of education goes up exponentially while they’re here.”
While Uecker acknowledges that the cost of tuition is a necessity, students can be making better choices about where to live either on or off campus to save money when it comes to taking out loans and cost of living.
“Students have options and choices to make,” Uecker said. “Obviously, it’s a lot cheaper to live in the dorms on campus than it is to live off of campus.”
The pressure of finding a job is something all recent graduates go through, but the pay for that entry level job begins to become a sole factor in students picking their first position out of college.
The Huffington Post conducted a study on the student debt crisis in 2015. From that study, it was found that in 1990, college students were graduating with debt that was 28.6 percent of their annual earnings, but by the year 2015, that number went up to 74.3 percent. This begins to make it impossible for students to move away from home right out of college with their entire paychecks going primarily to student loan payments.
The Huffington Post predicts that the typical entry level graduate’s debt could exceed their annual wages by the year 2023, which would make it impossible for students to pay back their loans that would cost more than they are making every year.
“After graduate school, I think it’s going to be extremely hard to pay off debt right out of school,” Burback said. “I am definitely moving home to save money to pay as much money as possible. My loans are going to be roughly $1,000 every month and I know if I move away from home I would be living pay check to pay check to make ends meet.”
The questions continue to be raised as to whether the cost of tuition is rising so high that students are eventually not going to be able to pay back their loans during the course of their lifetime. Student loan payment plans are currently spanning as much as 30 years of payments, which will continue to push back the retire age for the generations to come.
Soon-to-be recent graduates like Odekirk think the cost of tuition is getting too high, and that American students view education different than students in other countries. Odekirk studied aboard in Germany during her Spring 2016 to fulfill her international business requirement, and for her German minor.
“[Education] in Europe is free, and you talk to any German college-equivalent student and they study their butts off to learn and they value the value of their education a lot more,” Odekirk said. “I feel as if in America we go to school because we have to and because it is the next step, so going from a country that offers free education and having very smart and competitive future work force students, to a country where we have to pay and most kids don’t value their education as much says a lot.”
The high cost of tuition has students questioning if they chose the right degree, since some degrees will allow an entry level college graduate to make more money than others. Burback is one of the many soon-to-be graduates who regrets the major she chose four years ago.
“When I was a freshman, I did not think that I would need to go to graduate school, but shortly realized I would have to continue schooling,” Burback said. “If I could go back, I would pick human resources or public relations as a my major because I currently work in human resources and public relations and absolutely love it and I know I wouldn’t have to go back to school.”
While Burback regrets choosing a major that requires graduate school, Odekirk is happy with her International Business degree.
“It should have [affected her choice in a major], but I chose my career path on what sounded fun to me,” Odekirk said.
Uecker said that sometimes students and parents don’t know how to go about paying off their loans, and how the repayment process works, which is where he usually comes in. However, UW-W is in the process of hiring a Financial Aid Coordinator that will work with students who may not be able to make their payments or who don’t know how to manage making their monthly payments after the grace period.
“Sometimes, students and/or parents don’t really know what the process is,” Uecker said. “Like how do I get ahold of my loan processor, and what do I need to do to make this right and I can counsel them on what needs to be done, but it’s the loan processors that want the money.”
Before students can graduate from UW-W, they are required to take what is called Exit Loan Counseling for both their Perkins and Federal loans. This Exit Counseling shows students exactly how much money they will owe back in student loans, and they are given options for payment plans. There are two most common payment plans which are undergraduate and graduate with the different being a fluctuation in monthly payment amount as the year’s progress on the loan.
This type of Exit Counseling is just one of the outlets that helps keep students in the loop about their loans and what their responsibilities are when it comes to paying them back.
“I think in general, students are starting to get a little bit better in understanding [student loans] because it’s out there in the media being discussed at the Federal level,” Uecker said.
There are helpful websites for students like debt.org that gives students tips such as how to manage their student loan debt, and different financial tips for students to save money while trying to pay back their loans.
According to debt.org, $2,858 of student debt is accrued every second in the United States, and in February of 2017, student loan debt has risen for the 18th consecutive year.
These numbers can and will begin to effect the futures of the millennial generation. Debt.org found different impacts that student loan debt can have on recent graduates.
In a survey debt.org conducted, it was found that home ownership for individuals under 35 years of age has decreased to 21.2 percent. With loan payments lasting up to 30 years, it is likely that the millennial generation will not be homeowners because of the student debt.
Though the student debt amount continues to increase every second, there are options for students to finance or consolidate their loans to attempt to lessen those large monthly payments. Consolidating a loan means for a student to take all of their loans per school year and combine them into one large loan amount. By doing this, the student will only be paying interest on one loan, as opposed to four, and will only have to make one pay a month instead of four separate ones.
Lending Club, PersonalLoans.com and Avant were voted the top three loan consolidation companies by The Simple Dollar, a financial tracking website.
With the rise of tuition, and the rise in student loan debt, eventually it will become close to impossible for recent graduates to make payments on their loans. Students still have the options to make better choices about living and other costs throughout college to try and lessen their debt amount as much as possible over their four years as Uecker advises.
“The things that you choose as a student all effect the bottom line when it comes to the price tag at the end of school.”
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