College diplomas are throwing more than three-fourths of Iowa graduates into debt.
Students continue to graduate with debt that will follow them long after they leave the classroom despite growing numbers of state and federal programs aimed at improving their financial literacy and years of talk about curbing high student debt.
Seniors at public and private colleges across the state set to graduate this month say they are concerned about how debt will affect their lives, limiting their graduate school options and increasing pressure to find a job.
The demand for advanced degrees is pushing increasing numbers of students into Iowa colleges. These students face high tuition rates that have soared over the past three decades, ballooning by over 250 percent at public universities and over 160 percent at private institution.
Yet, many of the students, interviewed as part of an IowaWatch project involving student journalists on Iowa campuses, said college often is required for jobs. To pay tuition, students often take out loans.
Despite warnings from schools and lenders, students frequently borrow large chunks of money and don't make interest payments during school. After graduation, when the debts need to be paid off, students easily can find themselves swimming in a sea of red ink.
Iowa weighs in with the sixth highest student debt rates in the nation. Last year, graduates from Iowa’s three Board of Regents universities faced debts averaging $27,000. Their private-college counterparts averaged $30,000.
Recent reports show Iowa's student loan default rate at 11.6 percent, 2.5 points higher than the national average.
Iowa State University senior Alexander Hinsch will have roughly $48,000 in debt when he graduates with his marketing degree this month. He has been paying for most of his schooling on his own, taking out loans all four years.
Hinsch said he tried to save money. He worked summers and during the past two school years, but rent and living expenses ate into funds that could pay off loans.
He didn't expect to get his ideal position fresh out of college. “I'm expecting just to get my shoe in the door somewhere and work and pay back loans,” he said.
Debt creates “added pressure to get a job," University of Iowa senior Alexandria Sturtz said.
Sturtz, who will graduate this month with degrees in English and secondary education, said she was able to pay for some of her schooling with scholarships and her own savings. But when savings didn't stretch far enough, taking out loans was “pertinent to surviving.”
“I've come to accept the fact that me and most of my classmates will be graduating with this debt,” she said.
Over the past two decades, more students have borrowed to pay for their education, according to a national study by the College Board, an advocacy organization that promotes access to higher education.
From 1992 to 2012, the amount of money borrowed through student loans skyrocketed 150 percent, from $22.3 billion in inflation-adjusted dollars to $113.4 billion, the study showed.
Nationally, 66 percent of college students graduated with debt in 2011. In Iowa, the percentage of graduates with debt reached 72 percent.
But with a national economy that continues to bump along the path to recovery, graduates are seeing fewer jobs and smaller paychecks to pay off loans.
Lauren Graves, a fifth-year senior at ISU, will graduate with a major in art and design and a debt of roughly $30,000.
Paying for loans during college was impossible, Graves said.
“I don't have any excess money coming in right now. And I work. I work 30 hours a week, but I have to pay for rent and my car,” she said.
She isn't optimistic about finding a job in her field.
“The chances of finding a job in my major, I feel like they are pretty slim. I've had a hard time even looking for jobs. Everything that I've seen so far has needed a master's degree.”
A study of Iowa students with college loans shows students with high debt are more likely to find themselves underemployed or working jobs outside of their field of study in order to pay off loans.
HEAR THEIR STORIESClick the yellow markers on the map to hear graduating seniors from Iowa State University (Ames), Drake University (Des Moines), the University of Iowa (Iowa City) and Mount Mercy University (Cedar Rapids) talk about their college debt. Interviews were conducted in March by the following student journalists: Emily Drees, ISU; Lauren Horsch, Drake; Christopher Emery, Mount Mercy; Nora Heaton and Kathryn Susik, UI. Interactive graphic by Lauren Mills/IowaWatch.
COMMUNITY COLLEGE, A “RESPONSIBLE OPTION”
One way to save some dough while working toward a degree is to head to a community college, knocking out a few credits before transferring to a four-year institution. But while it may decrease the burden, most students still face some debt after completing two years at a community college.
In 2012, 64 percent of Iowa’s community college students graduated with debt, which averaged roughly $13,000.
Kevin Brodersen attended Indian Hills Community College for two years before transferring to ISU. The senior in family finance, housing and policy will have $30,000 debt when he graduates.
A Pell grant covered all of his Indian Hills tuition, but only 20 percent of his ISU bills. The rest was paid with student loans.
Brodersen had a job during school, but said there wasn't enough left over from his paychecks to start paying off loans.
Jenna Marzen, a senior at Mount Mercy University who transferred from Kirkwood Community College, credited attending Kirkwood with keeping her debt low.
“I decided to go to Kirkwood partly because I knew it would be cheaper and because I was paying for my own school and I thought it would be a responsible option,” Marzen said.
She spent two years at Kirkwood before transferring to the private university.
Still, after two years at Mount Mercy pursuing her public relations major, Marzen accrued between $30,000 and $35,000 in debt. Most of her debt is interest free because it came through a military officer’s loan.
Marzen said she set a goal to pay off the loans in five years.
“That’s a lot of money to earn and pay back in that short amount of time. And I recognize that. But knowing myself and the way I function, giving myself a goal is going to help me pay it off. It’s going to keep me motivated to get a good start and to work on it and to not put it off,” she said.
Marzen plans to keep her part-time job as a waitress and has a few freelance jobs lined up. She said she hopes a current internship with the Bridgehaven Pregnancy Support Center in Cedar Rapids could turn into a second part-time position.
“My goal in this next year is to kind of do a sprint and pay off as much as I can, especially the stuff that isn’t interest free. I’d like to start getting that out of the way so that I don’t have to pay as much over all,” she said.
THE DRAW OF PRIVATE EDUCATION
In 2012, roughly 66 percent of students at Iowa’s regent universities graduated with debt versus nearly 77 percent of students from private, not-for-profit colleges. Still, the promise of smaller class sizes and a more prestigious reputation draws students to private campuses.
Zac Pace accepted a full scholarship to Kirkwood Community College with an eye toward saving on tuition, but quickly transferred to Drake University the next semester. At Drake, Pace received an annual scholarship of $10,000, bringing his tuition roughly in line with the cost of a public university. Everything else was paid with loans.
Pace, an English major who plans to earn a masters degree after graduation, said debts racked up over the past four years will affect his choice for graduate school.
But in order to get a good job, Pace said, college is becoming “less of an option. It’s sort of required.”
“As of right now, I think that taking out the loans was worth it. Check back in eight months, 10 months, and see what I think.” he said.
“I do truly believe my Drake education will pay off. I do see the Drake experience as an investment in myself and I do think that I will be employable.”
On average, college graduates earn $1 million more in their lifetime than people with a high school diploma.
“Many graduates are graduating with reasonable loans that they can repay and the investment that they’ve made in themselves will pay off, even in the down economy,” said Debbie Cochrane, director of research at the Institute for College Access and Success.
Pace said he probably will pay back the loans for much of his life, but movements such as the income-based repayment program should help him make those payments.
The income-based repayment program, passed under the College Cost Reduction and Access Act of 2007, lowered loan payments on federal loans to 15 percent of income for those with financial need. After 25 years, the remaining debt is essentially forgiven.
Under the Pay As You Earn program, which came into effect in December, payments are capped at 10 percent and remaining debt is forgiven after 20 years.
Cochrane said flexible repayment plans have improved the situation faced by student borrowers.
The next step, she said, is for organizations such as the U.S. Department of Education to conduct outreach efforts to “ensure borrowers who could benefit from the programs know about them and can access them.”
Attending a private school didn't lead Kelsey Hagelberg, an integrated marketing major at Simpson College, to high debt. The senior said her debt is less than $7,000.
“I wasn’t too worried about debt because I knew I had been working every summer since I was in high school and my parents agreed to pay two years of my college education, so that was definitely beneficial,” Hagelberg said.
She decided to go to Simpson because of its reputation.
“If there’s a person at a (job) interview who was from Iowa State and you were from Simpson, you’d be more likely to get hired because Simpson has more of a superiority over other colleges,” she said.
Anna Mackin also will get her degree from ISU unburdened by debt.
Mackin, an apparel major, said she had help from her parents and took out loans through their bank, which she expects to have paid off six months after graduation.
The common thread between Hagelberg and Mackin: their parents helped foot the bills.
Heather Doe, associate director of marketing and communications for the Iowa College Aid Commission, said the commission works to educate parents about helping children with college payments.
Often parents are reluctant to take out loans in their name, especially as they start planning for retirement, she said. But it is important for families to help their kids through school.
“Back in the day, students could work a job and pay their way through school and borrow minimally. But over the past 20 years, the cost of college has gone up astronomically and the median family income just hasn’t kept pace,” Doe said.
A report by the College Board examined trends in college tuition rates over the past 30 years. Researchers found that, after adjusting for inflation, public four-year colleges increased in-state tuition by 257 percent. Private, nonprofit colleges increased tuition by 167 percent.
“It’s insane the amount of money that we pay in order to attend school. It’s an investment of course, but it is also an exorbitant amount to pay in order to further your education, especially in a country that tries to say that education should be available to everybody,” said Sturtz, the UI senior.
FEDERAL LOANS VERSUS PRIVATE
For families and students looking at loans, there are two main options: federal or private.
Federal loans offer advantages such as deferral and income-based repayment plans, which private lenders usually don’t offer. However, they also cap how much a student can receive.
“I don’t think the federal loan program is causing the debt burden. But a lot of students who don’t have family help are going to private education loans once they exhaust their federal funds. Students with private loans are the most heavily burdened with debt,” said Doe of the Iowa College Student Aid Commission.
However, university officials and lenders have seen fewer students taking out private loans as schools and other organizations push for Federal PLUS loans, which parents take out in their name on behalf of students.
Steve McCullough, president and CEO of Iowa Student Loan Liquidity Corporation, a non-profit private lender, said his company works to ensure students are using private loans as a last resort.
"We have specific safeguards that we've put into place. There's a borrower guidance statement that we put on the front of our applications that is very blunt and specific...We are very up front about saying they should make sure to take out all other aid first," he said.
The company also requires the school to certify the loan, ensuring the student is not over-borrowing.
In 2010, Iowa Student Loan introduced an initiative called the Student Loan Game Plan. Now, students and cosigners are required to complete the plan before receiving loans. In the student version, the game plan looks at the student's planned major and estimates the beginning salary for that major.
"The general rule is that you should only borrow as much as you'll earn in your beginning salary. The only way they can know that is by also knowing how much they can earn. The biggest problem we have with students is that they borrow right now, but they don't really feel the impact until after they graduate. It is really hard for them to determine how much is too much," McCullough said.
On average, 17 percent of the applicants lowered their requested loan amount by an average $2,000 after completing the game plan, according to the company's most recent annual review in 2012.
The game plan, which has been used by universities and by high schools to improve financial literacy, also helps students focus on the future.
"Students that borrow a lot in college really have to be career oriented so that they can pay off the loans after they graduate. It's really easy to focus on the next football game or how much fun you are having in college and not worry about the jobs you'll have after graduation," McCullough said.
He said the company urges borrowers to look toward the future and start paying back interest while students are still in school, but, in practice, few students do.
Regulations and restrictions on private loans were tightened over the past few years after criticisms arose about lender practices.
In 2009, Iowa Student Loan got into hot water with the U.S. Department of Education because of payments made to the Iowa State University Alumni Association, which the department said represented a conflict of interest. The corporation was ordered to pay $15.8 million in fines.
That amount was decreased significantly, however, to a payment of only $27,500 following an appeal in October 2012.
“From the beginning, we argued that we had been given contradictory guidance regarding that provision of the law and that the assessed liability amount was grossly overestimated,” McCullough said in a statement for IowaWatch.
Defaulting on a loan can mar borrowers' credit reports, keeping them from qualifying for home owner’s insurance and impeding efforts to rent an apartment or borrow money for a car.
Reports released in October by the U.S. Consumer Financial Protection Bureau show outstanding student debt nationally measures over $1 trillion dollars, vaulting it past credit card debt to become the largest source of unsecured consumer debt.
The U.S. Department of Education measures default rates based on the year a borrower enters repayment. Rates are published two years after the borrower enters repayment.
The department’s 2012 report released the default rates of borrowers who entered repayment in 2010. Iowa's 11.6 percent rate was higher than the national rate of 9.1 percent.
Default rates have steadily increased over the past decade. Borrowers who entered repayment in 2003 had a default rate of 4.5 percent, the lowest since the department started measuring defaults on student loans in 1987.
Iowa placed as the second worst state for student debt in a national study by the Institute for College Access and Success of the graduating class of 2005.
New data based on the class of 2011 shows Iowa dropping a few spots, to sixth.
Debbie Cochrane, the research director for the institute that conducted the study, said Iowa’s drop to the sixth rung is due both to improvements in Iowa and worsening debt in other states.
One factor was debt rates among ISU students, Cochrane said.
“That one college has a huge impact on Iowa’s debt. Over one-fifth of bachelor's degree graduates go through that school,” she said.
Roberta Johnson, director of student financial aid for ISU, said the university has worked to educate students about debt, making sure students know how much they owe and what options they have when they start to repay loans.
In 2012, students from ISU graduated with an average debt of $30,374.
"Our debt level at ISU is not where we would like it to be, but with the economic downturn and losing some federal grants, we've maintained the same level. While it looks like we are not making a lot of progress, the fact is that we are," Johnson said.
She pointed to a lack of state grants as one of the challenges facing Iowa's public universities.
Roughly 92 percent of need-based state grants in Iowa were awarded to students in private colleges.
"The fact that we have not had a sizable increase in the state grant program for years has certainly had a negative impact on our student debt. Without a grant program that can provide some money that will really have a meaningful impact on students, the alternative is to take out loans," she said.
In April, the regents created a task force to examine state funding coming into Iowa's three public universities. From school year 2009 to 2011, state funds decreased as a source of student financial aid by 31 percent.
In 2009, Iowa legislators took a step toward helping students prepare for college with the I Have a Plan Iowa initiative, Doe said.
The initiative helps eighth graders complete state-mandated plans for their high school education. As students continue through high school, the program helps them explore different career fields.
“Our hope is that they get a general ideal of what kind of career they want and that they are prepared, so that they don’t have to take remedial classes in college and they are on track to graduate college on time, helping to keep debt low,” Doe said.
Jenna Marzen, the Mount Mercy senior, said she had difficulty when she started college because she didn’t know what she wanted study.
“I spent my first two years exploring and trying to discover what I wanted to do. I had never heard of a PR major and it fits me perfectly. Before I got to my sophomore year I never knew it even existed. I felt like, ‘Why have I not heard of this before?’” Marzen said.
Programs such as the I Have a Plan initiative also help families and students research financial aid options. Knowing what careers students are interested in helps people evaluate their ability to pay off student loans in the future, Doe said.
It also helps people realize how much they can expect to pay.
“We talk to a lot of families that have always meant to save for college, but the time comes and they just haven’t put away as much as they’d hoped. They end up having to borrow more than they thought,” she said.
Zac Pace, the Drake University senior planning for graduate school, said he doesn’t regret taking out loans, but knows that, along with most of his classmates, he will feel the repercussions of that debt for a long time.
“The major thing for me is looking at expenses, making sure that I am making responsible fiscal decisions now. Because of my loan debt, the likelihood that I’m going to be able to buy a house is so slim, because loan debt does cripple your finances. It is a lot of debt, yes, but I’m not alone,” he said.
Reporting for this story was contributed by Emily Drees, Iowa State University/Iowa State Daily; Lauren Horsch, Drake University; Christopher Emery, Mount Mercy University; Kate Hayden, Simpson College; and Nora Heaton and Kathryn Susik, University of Iowa and IowaWatch.