BreAnna Smith borrowed $100,000 to get psychology degrees at the University of Akron and Argosy University.
She put the loan repayments on hold while she looked for a job. Eighteen months later, she’s finally found a great one working with kids with behavioral problems.
But she worries what will happen when she has to pay back her loans. She can’t afford the $900-a-month payments on a job that pays around minimum wage.
She may get a weekend job as a waitress. And she will worry.
“When I think about it, it makes me anxious,” said Smith, 26. “I joke about it, but I don’t want to think about it.”
The Navarre resident is among millions of students nationwide who are having trouble paying back their loans.
Nationwide, 14.7 percent of borrowers defaulted on their federal student loans in their first three years of repayment, according to new default rates released this fall by the U.S. Department of Education.
The U.S. Department of Education began producing three-year default rates last year at the urging of Congress. It wanted to know how many borrowers were defaulting on their federal loans in three years instead of two, the time frame that had been tracked to date.
“Mathematically, more [borrowers] will be included if you have a longer period of time,” said Debbie Cochrane, research director for the nonprofit Institute of College Access and Success.
The first official three-year default rates published in September 2012 were sobering enough: Nationwide, 13.4 percent of those who began repaying in 2009 had defaulted three years later. This fall, the three-year rate rose even more and raised more alarms.
President Barack Obama is so concerned that he has suggested tying federal financial aid to a new rating system that would link affordability, graduation rates and more to federal financial aid.
Students at colleges and universities with the best ratings would get more favorable rates on federal loans.
For profits: Big defaults
Nationwide, students at for-profit colleges would be least likely to reap the benefits of low interest rates.
They have the most trouble repaying their loans, with almost 22 percent not making payments for at least 270 days in the last three-year snapshot.
They could not find jobs as truck drivers, chefs or cosmetologists or couldn’t pay their debts on the jobs they got.
Cochrane, of the Institute of Student Access and Success, said these students face a double whammy: They often are underfunded to start with and are more likely to borrow money. If times get lean or their plans don’t pan out, they have less to fall back on.
That’s what happened to Erin Radcliffe, 51, of Cuyahoga Falls.
She borrowed a relatively modest $7,500 to attend the Portage Lakes Career Center in Green to become a certified medical assistant.
But she said a debilitating chronic pain disease called reflex sympathetic dystrophy prevented her from landing a medical job. She continues to work at Goodwill Industries, where she worked while in school, making about $9 an hour and worrying about what the future will hold.
She doesn’t know how she will pay back what has grown to $12,500 including interest since 2008. She aims to keep deferring her debt for as long as she can.
“I probably will owe them a quarter of a million dollars over the next 25 years,” she said. “There’s no way I can pay it.”
Private students do best
Meanwhile, students at private, nonprofit colleges and universities have the best record when it comes to repaying loans: Just 8.2 percent defaulted in the last three-year window.
“We tell parents, ‘They’re going to get out of here in four years and they’re not going to move back home,’ ” said Scott Friedhoff, vice president for enrollment and college relations at the College of Wooster.
The private college has an enviable four-year graduation rate of 78 percent, in part because its students “are not those who are trying to decide if college is for them,” Friedhoff said. They already are committed to a college education, he said.
However, most Ohioans attend tax-supported colleges and universities, whose prices are half or less that of private institutions.
While the public college default nationwide rate is 13 percent, the rate fluctuates wildly among individual colleges. At Ohio’s 11 research universities, the rate varies from a high of 18.4 percent at Youngstown State and 14.9 percent at the University of Akron to a low of 7.1 at Ohio State.
Worry about UA debt
The UA rate is troubling to Michelle Ellis, executive director of student financial aid.
That almost 15 out of every 100 students defaulted in their first three years of repayments “is of grave concern to us,” she said.
She worries that the university will lose flexibility in distributing aid if the number of defaults continue to climb.
If UA’s default rate hits 15 percent for three years in a row — it’s already perilously close to that in the last three-year calculation — it would have to disburse federal loans more slowly to students, she said.
She suggests that the explosion in students who enrolled during the recession included many who were not prepared financially and academically.
At Youngstown State University, Elaine Ruse, director of financial aid and scholarships, said the high default rate is fueled by students who dropped out.
She said her analysis of the rates indicates that only 48 of the 730-some YSU students who defaulted between 2010 and September 2012 had earned a YSU degree.
Another 241 had not completed any credit hours at all. “They either withdrew or failed,” very quickly after enrolling and after they borrowed money, Ruse said.
Starting next fall, she said, YSU will direct underperforming students to the tax-supported and more affordable Eastern Gateway Community College that opened last year just blocks from YSU, or other two-year public colleges.
“The number of students who are defaulting on their loans will be declining” in the future, YSU spokesman Ron Cole he predicted.
Bad times for borrowers
For borrowers, the downside of defaulting is catastrophic.
Defaults batter credit ratings and the loans cannot be discharged in bankruptcy, said Cochrane of the Institute of Student Access and Success. Debtors’ wages can be garnished and their tax refunds withheld.
According to a new study by the University of Kansas, adults with student debt tend to show lower college graduation rates, delays in marriage and buying cars and homes, and lower net worth than those without debt.
Defaults also are relevant to a wider audience than just the borrowers, according to Cochrane — students and their parents who are selecting a college.
“The loan is supposed to enable them to get an education to get a job and pay back the loan,” she said. “When you see high default rates, you know something in that string of logic has broken down.”
Nor do the default rates necessarily reflect the full picture.
They don’t measure how many payers are delinquent — in other words, behind on their payments — or those who stop paying years down the line, way beyond the three-year framework of the current reports.
They also don’t capture the misery of those who thought they were doing the right thing but lived to regret it.
“I feel terribly disappointed and foolish,” said Thomas Nelson, 54, of the Columbus area. He has $100,000 in loans that he took out to earn three degrees at Ohio State. He is working several jobs, including as a part-time college instructor, to make $30,000 to $35,000 a year.
Starting in January, he faces a grim prospect — paying $1,000, about one-third of his income — on his student loans when his deferrals end.
He thought that borrowing money was the right thing to do, a necessary step toward a new career as a full-time college teacher. But a full-time job in the crowded higher-education market has eluded him.
“The effort and risk is apparently not going to pay off,” he said.
Bre Newell, 27, of Akron, questions why she went to college.
She borrowed a relatively modest $15,000 to get a communications degree from UA and launch a career in human resources.
But her work as a receptionist for $12 an hour won’t enable her to pay as much as $300 a month on her loans starting next month when her second deferral for hardship ends. In the meantime, the interest on her loans continues to mount.
“If I had to do it all over again, I would rethink the whole college experience,” she said. “Maybe a trade school would have been a better idea.”
Carol Biliczky can be reached at firstname.lastname@example.org or 330-996-3729.