Minnesotans with big student loan debts: Some cautionary tales — and advice

MinnPost photo by Bill Kelley
University of St. Thomas alumnus Chris Brennan estimates it could take "maybe 15 or 20 years" for him and his wife, a fellow St. Thomas alum, to pay off their student loans.

Chris Brennan’s student loan story is a cautionary tale for today’s – and tomorrow’s – college students.

He borrowed $15,000 in his final year at the University of St. Thomas in St. Paul while earning his undergraduate degree. He went back to the school in 2009 after the non-profit where he had worked since graduating in 2001 downsized during the Great Recession and laid him off.

Brennan took out another $25,000 in student loans for graduate school. His wife, Emily, returned to the University of Minnesota for a master’s degree in public health and accumulated $50,000 in student loans.

Brennan, 35, lives in St. Paul and is now a high-school social studies teacher who loves his job. He starts his second year of teaching this fall; after five years, $5,000 of his loans will be forgiven.

His wife works at a hospital. They own a house and have three children.

And they haven’t paid off their student loans.

“It’s going to take a long time,” says Brennan – maybe 15 or 20 years. “We’re struggling financially right now.”

Brennan says he and Emily had no choice but to borrow to get the education they needed, but he wishes he had gotten more blunt advice before he signed the loan documents.

He should have pressed his academic adviser and financial aid officials about his job and income prospects while he was earning his undergraduate degree in justice and peace studies, he says.

The questions he should have asked, Brennan says: “How much money will I make? Will I be able to pay this back?”

He advises students to ask those tough questions and be realistic about taking on a mountain of debt. That’s difficult for young students, he acknowledges. “My own mindset was, I was in college. I wasn’t thinking about anything,” he says.

“Don’t say, ‘What the hell.’ It does matter,” he says.

House passes compromise loan bill

The U.S. House of Representatives on Wednesday passed a compromise bill that links student loan interest rates to 10-year Treasury notes and eliminates the requirement that Congress determine rates each year.

The U.S. Senate has passed a similar version of the legislation.

If the proposal becomes law, the interest rate for undergraduates this fall would be 3.9 percent. Graduate students would pay 5.4 percent. Rates would increase in coming years if the economy continues to improve.

The bill would cap interest rates at 8.25 percent for undergraduates and 9.5 percent for grad students.

Whatever interest rates they’re paying, says Terry Nelson, a certified financial planner in Roseville, many students “are taking on way too much debt for college.”

Too often, he says, “students don’t plan through the job opportunities out there in their field. They just want to follow their dreams.”

Nelson recommends that students and their parents approach paying for college as a business decision.

“Kids need to look at themselves as an asset,” he says. “They need to know that their job opportunities are going to be able to pay for that expensive degree.”

Focus less on the status of degrees from high-priced, top-tier universities, he suggests, and pay more attention to tuition costs. Consider starting at a two-year school. Sometimes enlisting in the military is a solid option for someone who wants to get experience that helps hone career decisions and needs help paying for college.

As Brennan learned, it’s vital to “focus on earning potential,” Nelson says. Students who choose to major in a field where jobs are difficult to find, he says, should consider a minor that translates more readily into an entry-level job.

Students should apply for paid internships or jobs so they can earn while attending school, Nelson says.

Accumulating additional debt after college is another trap for people embarking on their careers. “They come out of college with way too much debt, then go buy a house … and a couple of newer cars and they are up a creek for the next 30 years,” he says.

Ashley Hall, 26, doesn’t want that sort of future.

This fall she’ll start her second year of veterinary school at the University of Minnesota and expects to need – for the second year in a row — $75,000 in student loans for her out-of-state tuition.

She and other students dependent on loans “have this cloud over our heads that we’re constantly thinking about,” she says. Hall’s husband is working two jobs; they have a 5-year-old son.

They sought advice on their fiscal future from a financial planner and know some lean years lie ahead.

“It’s kind of scary,” Hall says, “but we’ll find some way to make it.”

Defaulted on loans

Tanya Meintsma of New Brighton is afraid student loans have helped land her in a similar predicament.

She took out $60,000 in student loans and enrolled in a two-year surgical technologist program at High-Tech Institute. She graduated in 2007, just as the recession was taking hold.

She’s never been able to find a job as a surgical tech, in part because of some personal setbacks, and Meintsma now earns $9 an hour working in a call center. Earlier, she worked at Walmart and in a plastics factory.

“Nobody knew the economy was going to crash,” she says. “I wish I had gone to school part-time and paid it off as I went.”

Meintsma, 33, has defaulted on her loans and recently received a letter saying her debt has been bought by a third party that is increasing the pressure on her to start making payments.

“I’ve just been ignoring them. What else am I going to do?” she says. “You can’t be upset over something that’s out of your control.”

Meintsma says she has few options. She could go back to school for a four-year surgical tech degree in hopes that would make it easier to find a job in the field, but that would mean taking out still more student loans.

She hates her current job, which she got through a temp agency, she says. “I am better than this job,” she says. “It lowers your self-esteem.”

Meintsma, who has a 12-year-old son, worries that her mistakes will affect the rest of her life.

“I have no credit. I’ll never be able to buy anything,” she says. “I have no assets. I don’t even have a checking account.”

$200,000 price tag

Jeff Remakel considers himself lucky.

His parents helped pay his undergraduate tuition at the University of Minnesota, so he didn’t need student loans until he enrolled in dental school.

The price tag: $200,000. His parents loaned him $50,000 and he got the rest from subsidized and unsubsidized government loans. Not bad, he says, compared to some classmates who have “easily $300,000” in student loans.

Still, Remakel says, he’ll be writing checks for the equivalent of a monthly mortgage payment “for the next 10 years” to pay back his loans. He graduated in 2011 and works at a large dental practice in St. Louis Park.

He can afford the loan payments, says Remakel, 28, but he thinks now about ways he could have made college more affordable. He could have completed his undergraduate degree in three years instead of four, he says, and he could have taken some college-level courses for free while he was in high school.

“Live smart. You don’t need a fancy car,” he advises current students and other recent graduates. “Create a budget.”

Remakel says his student loan debt affects his life now. “Your savings don’t go up as much when you’ve got big student loans,” he says, and he hasn’t been able to “give back to patients on medical assistance” as much as he’d like.

When he has a family, he says, he’ll definitely do what his parents and grandparents did: Start a college fund early.

‘I wish it was different’

Brennan says he’s resigned, not bitter, about his student loan debt.

“I wish it was different,” he says. “I wish I didn’t have to put all our money” into loan payments.

“I made the choice,” he says. “No one made me do it, but it affects our life right now and how we live.”

There’s no way to make student loan debt disappear, Brennan says, “You’re just stuck with it no matter what. It’s a different look at the American dream, though, compared to 40 years ago.”

Comments (10)

  1. Submitted by Chris Williams on 08/05/2013 - 12:43 pm.

    A conscious choice

    I’m in a similar sort of situation. I happened to be naturally good at computers, just dumb luck, and graduated high school right as the dot com boom of the 90’s was picking up steam. I was just a “B” student and not really able to qualify for any college scholarships (I had some unique difficulties in High School early on). With the internet boom though, I had no trouble at all finding a decent middle class job paying $40k-ish right out of high school at age 18. It was awesome, and I was very lucky.

    I’ve worked my way up the ladder in various companies, with experience substituting for a college degree until now. However, with all these highly qualified people sitting on the sidelines or underemployed, it’s been next to impossible for me to move any higher up the corporate ladder when I’m competing with guys that have MBA’s. So I enrolled in college.

    Being a working adult with a full time (and then some) IT career, I didn’t have a lot of choices for a non traditional student like myself to go to a “real” accredited college. So I ended up at Augsburg in Minneapolis. It’s a great school with a very supportive adult education program and classes on the weekends. Each four credit class comes to about $2,000 after books though. If I knew exactly what I wanted to do with my life and only took the needed classes I was looking at about $60k bare minimum. Sure, I could have pieced together some wacky plan with community college first, taking long lunches to take daytime classes, and working in the occasional night class (This wouldn’t work though at Century College, for instance, wouldn’t allow me to do everything I needed on nights and weekends alone – they just don’t schedule certain classes then and I wasn’t about to drop out of the workforce) but really, as an adult looking for a flexible way to just knock this thing out ASAP there weren’t a lot of choices for a real school with a weekend program and the occasional on-line class. Being that I switched my mind about halfway through (from Economics to a double major in Business and MIS), I’m going to have to tack on about another $20k. Most of that money is borrowed money.

    This is a conscious decision I made. I capped myself at 1 years salary for my borrowing limit (per an advisers recommendation). My employer offers very limited tuition reimbursement ($3k/yr) and I’ve been trying to pay as I go for at least one class a semester but ultimately, I’m expecting a student loan payment of around $1,100 a month for the next 10 years when I graduate from the loans I’ve had to take.

    I know all the numbers and figures, and have prepared my budget to absorb the hit, and went into this with my eyes open – but it’s still a colossal figure, and money I won’t be contributing to the economy in any way for a decade. I’ve resigned myself to apartment living and keeping my paid off car going as long as possible too. I’m really hoping this opens up more doors up the corporate ladder to make this worthwhile, and increase my earning power.

    Really, the problem here is the enormous cost of education these days. It’s just flabbergasting. Even with choosing a reasonable degree with the potential for high earnings and already having a successful career, I’m neck deep in it. I’ve planned it out so I can survive, but this really isn’t the American dream here…. I’m not looking at a home in the ‘burbs, a new car, 4 kids, and a summer drive across America in the ol’ paneled station wagon anytime soon. I think a lot of older people have been a bit harsh on today’s generation. It’s a lot harder to make it, even for those of us willing to work for it.

  2. Submitted by Bill Coleman on 08/05/2013 - 11:23 am.

    I see a theme…

    Private colleges, both non-profit and for-profit. Huge marketing budgets attract students. Beautiful and expanding campuses. Financial aid offices ready to help with loan paperwork. I am not sure how much state and federal funding flows to these colleges through student grants and loans, but it might be the right time to ask these colleges to finance these students through their own endowments; those must be pretty flush right now with the last few years of the stock market.

    I at least have some sympathy for 18 year old kids wanting to keep up with their peers in the college tour and application derby that dominates the discussion during their junior and senior year of high school. I have somewhat less sympathy for adults that make these choices rather than attend a community college or Metro State.

    At the same time, I am with Senator Elizabeth Warren and her statements about allowing students to borrow from the federal reserve at the same rate as banks, now at less than 1 percent. It does not make long term sense for our society to overprice the path to having a highly educated community.

  3. Submitted by John Reinan on 08/05/2013 - 11:28 am.

    My college cost in 1976: $4,000. My college today: $51,000

    I entered St. Olaf in the fall of 1976. The full cost of the year, all-in, was $4,000. According to the Bureau of Labor Statistics inflation calculator, that’s equal to $16,500 today.

    Yet the incoming student at St. Olaf this fall won’t pay $16,500 — they’ll pay $51,000. That’s three times what it would cost, if the price of a year of college had risen in sync with the entire economy.

    Why has the cost of a year of college gone up at triple the rate of everything else in our economy? Nobody has even been able to explain it to me.

    I could work a summer job at $5 or $6 an hour, work a part-time job during the school year, and cover the majority of my costs at this relatively elite private college. I graduated with $5,000 in loans. I paid them off at over 10 years at $58 a month.

    Today’s college student hasn’t a prayer of doing that. Not only is their cost monstrously inflated — but those jobs that paid me $5 or $6 an hour in the 1970s STILL wouldn’t pay much more than that today.

    Today’s students face huge costs with no prospect of earning enough money to make a dent in them. Massive debt is their only course, unless they’re fortunate enough to come from a family that can cover $200,000 in college costs. But what if they have siblings? I went to St. Olaf with many people who had 2 or 3 siblings that either had, were or would be attending St. Olaf.

    Who can come up with $800,000 to send their four kids there today?

    I realize that not every student pays the full sticker price. And I don’t mean to single out St. Olaf — every other college has a similar story. But this is going to destroy our economy if we don’t get a handle on it.

    • Submitted by Jay Willemssen on 08/05/2013 - 04:23 pm.

      Instructional expenditures per full-time student, 1976 v 2010

      At public 4-year US colleges, in nominal dollars, instructional expenditures per full-time equivalent (FTE) student in the 1976-77 academic year were $1,919. In 2010-11, they were $9,133.

      Adjusted for inflation, the latter is 26% higher than the former. However, if the adjustment isn’t inflation, but per capita GDP, those expenditures per FTE student were 12% lower in 2010-11 than in 1976-77.

      Sources:
      http://nces.ed.gov/programs/digest/d95/dtab336.asp
      http://nces.ed.gov/programs/digest/d12/tables/dt12_412.asp
      http://1.usa.gov/hkoR1
      http://bea.gov/iTable/iTableHtml.cfm?reqid=9&step=3&isuri=1&910=X&911=0&903=264&904=1976&905=2013&906=A

      • Submitted by Steve Titterud on 08/05/2013 - 10:45 pm.

        Per capita GDP – how wonderful those figures are…

        …for the 1% !! You know, the already-well-off who have accrued more and more wealth during this same period of time are getting a better bargain on the college expenses of their kids – every day, it gets better and better !!

        Unfortunately, for the rest, those costs have increased even BEYOND their face value, and in a society where the GDP is distributed VERY unevenly, GDP per capita can only mislead.

        • Submitted by Jay Willemssen on 08/06/2013 - 11:00 am.

          Context

          The vast majority of college instructors have doctorate degrees. So when looking at the movement of college instructional expenses, it’s good to break out educational attainment, gender, and working status.

          From 1991 to 2011, for full-time, year-round workers with doctorates, ages, 25+, in constant 2011 dollars, median income increased $10,549 for males and $11,113 for females. Per capita GDP increased $9,564.

          http://www.census.gov/hhes/www/income/data/historical/people/2011/P24_2011.xls

          It’s also instructive to look at the actual costs of education instruction (tuition less grants), the cost of any debt in terms of cash flow, then weigh it against the value of specific levels of educational attainment generally, then specifically break it down by institution, occupation, and gender.

          Articles like these tend to focus on anecdotes, which is fine, but they should cover a broad range of anecdotes to be useful. Usually, they tend to focus on extreme cases.

          If you’re lumping in all college costs (tuition, room, board, fees, insurance, etc), not accounting for assistance (and delineating grants from loans) and the share of students getting them, not delineating between types of colleges (public or private, nonprofit or profit, 2-year or 4-year), then the data won’t indicate much.

          Another crucial form of context is the actual earning value of a bachelor’s degree. Over a working lifetime at the median, pretax in today’s dollars, a US male with a bachelor’s will make $981,000 more than a male HS graduate, and a female will make $728,000 more. So unless the lifetime costs of a college education exceed that (which they won’t), then it’s still rational to get a college degree in general.

    • Submitted by Susan McNerney on 08/05/2013 - 04:28 pm.

      the cost at public universities

      is very closely tracked with cuts in government support for those universities. We’re cutting our support for college students and then wondering why they can’t afford it. It’s frustrating the media doesn’t explain this better.

      Private schools have a different equation, but they too have lost some public support (my alma mater in oregon, a small private nonprofit school, lost 500k a year from an Oregon state grant due to budget cuts). In addition, inflation matters. $4,000 in 1976 is $16k in today’s dollars according to the online BLS inflation calculator. Having recently gone through this process with some students I’ve volunteered with, I can tell you that 16k is only about 4k less than what genuinely middle class students (families making less than 80k) will pay there. The sticker price is inflated for wealthier students, and that additional money covers increasing health care costs, new buildings (which cost more to build), and a variety of other costs that have gone up faster than inflation over the years.

      However, 19-20k a year adds up quickly. It’s still too much for the average family, just like 4k was too much in 1976 (and far fewer people, as a percent of the population, went to college in 1976, by the way – in the 40% in the 1970’s, now in the 70% range, according to the NYTimes http://economix.blogs.nytimes.com/2010/04/28/college-enrollment-rate-at-record-high/?_r=0).

  4. Submitted by Susan McNerney on 08/05/2013 - 04:17 pm.

    The Oregon/California option may be the only answer

    Oregon just passed in their legislature the preliminary steps toward an entirely different way of financing education. A couple of years ago, some University of California students got in the news for promoting a similar idea.

    The idea is simple: You pay nothing up front for college, including room and board. Then, you pay an additional tax of 3-5% out of your paychecks (depending on the type of school) for the next 20 years to pay it off.

    Those who become wealthy will pay a lot more. Those who make less, pay less.

    It makes the system more progressive, and it puts control into the hands of students, and recent students – rather than their parents, who have problems of their own. It also can alleviate the pressure to go into lucrative fields that may be of less use to society (our best and brightest often chase jobs on wall street, repackaging mortgage backed securities, when we could better use them working with underprivileged children).

    And keep in mind, the average postgraduate cancer researcher makes about 45-50k a year (many make less). Our scientific community alone would benefit from such an arrangement.

    A few colleges have already tried something like this, but Oregon’s proposal is the first on a large scale. It’s yet to be determined if it will actually happen, but the system is in crisis, and it’s a good idea. If an average middle class family cannot afford the University of Minnesota, we have a problem.

  5. Submitted by Joe Musich on 08/05/2013 - 10:23 pm.

    Education should be ….

    Free of connections to finance. Don’t we all bnefit the more we all are educated ? And that’s not even asking for the explanation for the reasons some jobs have a higher pay rate then others. There seems to be an equity shortage in the working world relative to salary.

  6. Submitted by David Frenkel on 08/05/2013 - 11:55 pm.

    payroll tax

    Interesting idea about the additional payroll tax but who is going to bankroll the colleges/universities until they start getting enough money from the taxes to pay for their operations?

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