Monday, October 01, 2007

Loan To Learn, Debt For Life

The NY Daily News runs a story today about a woman from California who came to New York to make it as an interior designer.

She attended Pratt Institute and took on $95,000 in student loans to complete her education, a master's degree in interior design.

Pratt Institute, btw, was one of the institutions of higher learning that was exposed by NY State Attorney General Andrew Cuomo for receiving kickbacks from student loan lenders to steer student business their way regardless of cost to the student.

Anyway, this student now owns her own interior design company, teaches spin classes at night and lives with her boyfriend in a very nice apartment across from the Brooklyn Museum.

All's well that ends well, right?

Well, not exactly.

You see, the woman - Danielle Fennoy - is drowning in debt as a result of her student loans:

Fennoy had visions of making it as an interior designer and eventually buying a big Brooklyn brownstone when she moved to New York six years ago from Pasadena, Calif.

But the $95,000 in student loans Fennoy took on to finance a master's degree in interior design from the Pratt Institute in Brooklyn are derailing her plans.

While Fennoy will take in about $55,000 this year from her Tribeca-based business, Make Design, and from teaching spin classes at a Brooklyn gym, she won't have much to show for it.

More than one quarter of her $36,744 after-tax income goes toward paying back her student loans. Add on her $850-a-month share of the rent, and other living and entertainment expenses, and Fennoy's average monthly tab exceeds her income by $1,068.

To pay her bills, Fennoy taps her Visa credit card with its 19.95% interest rate (she owes $1,637), and her rapidly depleting bank account, which has shrunk to $6,100 from $10,000 in the last two years.

"At the end of the day, I go home to my debts," Fennoy said. "It's such a weight on my shoulders."

Pratt loaded Fennoy up with private student loans - about 60k's worth - which currently are accumulating interest at a 8.5% rate.

She also carries another 35k in government subsidized loans with a more manageable but still sizeable interest rate.

Fennoy says she didn't understand what her financial obligations would be once she graduated from Pratt. She says Pratt didn't tell her, her parents weren't able to give her any guidance and she didn't ask enough questions about what she would have to pay later.

Fennoy doesn't know when, if ever, she will be able to pay the loans off.

The loan industry managed to get the federal government to write into law that student loans cannot be discharged for any reason in bankruptcy court, so Fennoy will have to try and pay them off. The Daily News notes that she should try and cut down on her expenses, especially her restaurant and bar tab. That's a very good point, but even cutting down those expenses will only save her about $3,300 a year, not nearly enough to make up the deficit.

She will still be drowning in debt.

Fennoy is not alone in her student loan nightmare. The Daily News reports that

As tuition has soared, student borrowing has grown at an average annual rate of 27% since 2000, and now totals $17.3 billion, according to the College Board.

As a teacher of high school seniors, I constantly tell my students that they must be judicious in their choice of college and take cost into account because living a life where their sole goal is to pay off student loan debt will not be fun and is not the reason they are attending college in the first place.

I tell them they're going to college to make better lives for themselves, not make better quarterly profits for Sallie Mae or Citibank.

Unfortunately, these days it seems college kids really are only going to school to increase the financial industry's profits.

Even with the recent college aid bill passed by the Democratic Congress and signed into law last
week by President Bush (Pell Grant increased to $5,400 by 2012, subsidized loan rates lowered to 3.4% by 2012, PLUS loan rates lowered to 4.5% by 2012), students are having an increasingly difficult time paying for college.

Right now, I am meeting with each of my 61 seniors, asking them about their choices for colleges, their choice of majors, and how they are going to pay for their education. I ask them their GPA and SAT scores and about their family's financial situations.

When kids say they want to attend schools like Pratt or NYU, I point out their family's finances, show them how much the education will cost per year (with Pell grants and TAP money subtracted if it looks like they will be eligible) and show them realistically how much debt they will be taking on per year to attend their "dream school."

More often than not, the debt figure is $25,000-$40,000.

I then multiply that number by 4 and show them what they will owe upon graduation. I explain approximately how much they will have to pay per month for their student loans and then ask them "Is this something you think you can do for the first 20 years out of college?"

More often than not, they feel it is not.

Nonetheless, I tell my students to apply to their dream schools and note that sometimes campus-based aid or need-based programs like HEOP or EOP can make up the difference in costs.

For a few students, it does.

For most, it does not.

Thankfully, more cost-effective alternatives like SUNY and CUNY schools exist for these students (though even SUNY and CUNY schools have seen soaring costs over the years.)

The overall point is to help my students make informed decisions about their college educations. I don't want them to end up like Danielle Fennoy after graduation - drowning in debt and despairing of ever paying that debt off.

I also don't want my students loading up their parents with thousands of dollars in PLUS loans. Schools like Pratt have a habit of offering 20k a year in PLUS loans to parents who live paycheck-to-paycheck or in subsidized housing and have no chance to ever pay that kind of debt off.

I want my students to be able to say "Going to college gave me more opportunities in life!",
not "Going to college loaded me up with a lifetime of debt that has kept me living at home working a job I hate so I can pay off Sallie Mae and Citibank every month!"
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