An Upside to College Debt—The Diploma

Students who will do anything not to borrow risk not graduating.

You can't put a price on preparing for prosperity. Well, maybe you can. (Photo: Chip East/Reuters)

Nov 30, 2011· 2 MIN READ

Stef Gray is an ambitious young woman with three college degrees and a harrowing story: she’s unemployed and drowning under a mountain of debt.

“I’ve worked two jobs to make ends meet pretty much the entire time while I’ve been in school,” she told The Fight Back at Occupy Wall Street in Zuccotti Park. “Starting in January, I owe $700 a month on my $130,000 of student loan debt. That’s at 9.75 percent interest. The total amount just keeps snowballing higher and higher as I keep looking for jobs desperately. Right now, I can’t even pay my rent and I live in fear of homelessness and eviction.”

Gray’s lament is familiar to thousands of college graduates facing a similar fate. According to USA Today, student loan debt in the U.S. will exceed 1 trillion dollars this year. That’s more than the credit card debt of all Americans combined.

Not surprisingly, the generation of young people coming of age during the financial crisis developed an extreme case of debt aversion. Seeing their predecessors struggle, the message they received was loud and clear: Avoid student loans at all costs. That became Jesse Yeh’s mantra. Now in his third year at the University of California-Berkeley, Yeh managed to avoid incurring any debt.

But what sounds like a financially responsible plan worthy of admiration may be anything but. In a classic case of “damned if you do, damned if you don’t,” experts warn that students who bend over backwards to avoid borrowing money risk not graduating at all.

In Yeh’s case, the struggle to get by on a shoestring budget took a toll on his quality of life. He sought permission from the Dean to take an unusually heavy course load of 21 credits so he could graduate sooner. That meant giving up exercise and reducing his sleep allowance to five or six hours a night.

With little time to shop for food or prepare meals, Yeh started eating out. That costly habit forced him to forego occasional meals and scrounge for free food at campus events whenever possible. Unable to buy his own textbooks, he relied on whatever the library had available. Instead of spending weeks working on term papers, he routinely had to cram them in the night before.

Though Yeh will likely push through to graduation, other debt-free students won’t make it that far.

The AP reported that in order to minimize borrowing, students often forego their spot at selective institutions to attend less expensive options, switch to part-time status to spend more hours at work, and trade the dorm experience for living at home. Unfortunately, all of these money-saving alternatives are also risk factors for dropping out.

Deborah Santiago, cofounder and vice president for policy research at the group Excelencia in Education, explained that selective institutions, though more expensive, offer more financial aid and academic support.

“There’s been such attention on student debt being unmanageable that current students have internalized that,” she said. “If you can take out a little bit of a loan you’re more likely to complete. If you can go to a more selective institution that gives you more resources and support, you’re more likely to complete.”

Her group analyzed 2008 federal data showing that 60 percent of full-time students received a bachelor’s degree within eight years, compared to just 25 percent of part-time students.

60 percent of full-time students received a bachelor’s degree within eight years, compared to just 25 percent of part-time students.

Other research demonstrated that 73 percent of students who attended selective schools earned a four-year bachelor’s degree within nine years, compared to 50 percent who attended non-selective schools. The conclusion: borrowing a reasonable amount of money to go to a selective college full-time paid off more than not borrowing at all.

Eloy Oakley, the president of Long Beach City College, argued that student debt aversion can be a more dangerous problem than student debt.

“The longer they’re in school, the more opportunity they have to be distracted by life events, jobs, families, situations that change in their own families,” he clarified. “If we can minimize those exit points and shorten their time to degree, that’s much more advantageous to them.”

The key is to help students strike a balance between a rewarding college experience and a moderate amount of manageable debt. As Santiago pointed out, that’s often easier said than done.

“It’s hard to get a nuanced message to students so they can act prudently and get their education,” she offered. “We have to show there’s a level of financial aid and loan amount that’s reasonable.”