Students’ loan debt may not be worth the cost of college

Christina Cocca

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Photo illustration by Misael Virgen

Some students may be forced to consider the payoffs of college when paying off the loans after student loan debt hit the $1 trillion mark last year, according to the Consumer Financial Protection Bureau.

According to the CSU Graduation Initiative, CSUN’s average graduation rate is less than 50 percent. About 43 percent of those students who graduated from CSUN in 2010 assumed loans with an average loan amount of $15,725, according to CSUN’s College Portrait.

“Most of our students work while going to school, and it often takes them much longer to get a degree,” said Dr. Bettina Huber, director of CSUN’s Office of Institutional Research, regarding the 50 percent graduation rate. “With the numbers these days, students who work simultaneously are not taken into account.”

These types of numbers show that the risks of student loans may not be worth the pay off, according to James P. Dow Jr., professor and chair of CSUN’s department of finance, real estate and insurance.

“Students borrow too much for the major they have, and they should think about how much they’re going to earn after college when they think about how much to borrow,” Dow said. “If you borrow $100,000 for a major that’s going to pay $30,000 when you graduate, that’s just not going to work.”

The media has been questioning the possibility of whether student loan debt could become the next bubble after the housing market crashed.

Dow shut down the possibility of concerns over whether the student loan debt or default situation may be the next “bubble” and said people should be careful with bubble terminology.

“The housing market itself was a bubble in terms of housing prices, so when the housing prices fell, the loans that backed them went into default,” Dow said. “Student loans are not the same, because it’s not like we are going to see a sudden fall in the lifetime income of students.”

Another difference between housing and student loans would be the ability to lose the home and file for bankruptcy, an option not available for student loans. According to the U.S. Bankruptcy Code, student loan debt is one debt that cannot be discharged in bankruptcy unless the person can prove paying back the loan will cause undue hardship.

Shirley Svorny, a professor of economics at CSUN, compared the targeting of students to the targeting of mortgage lenders to people who would potentially be unable to pay down loans.

“If the loans are guaranteed, it encourages banks to not look at the riskiness of the individual; otherwise, why would they loan money to a college student?” Svorny said.

Svorny suggested students view loans as an investment in “human capital,” something that will make one more valuable in the labor market after college. She also credits some of the student loan problem to pressure from parents, politicians and society to attend college.

“President Obama is saying ‘everyone should go to college,’ and that’s dismissive of people who have other types of skills who aren’t good in a classroom,” Svorny said. “We’ve moved in this direction of so-called equality where we think everyone should go to college, but forcing everyone to do the same thing isn’t equal, and it’s forcing square pegs into round holes.”

Miranda Mendoza, a sophomore communication studies major, said she will owe $20,000 by the end of this year.

“My mom makes too much to get other financial aid and not enough to pay tuition in full, so we had to take the loans,” said Mendoza, 19. “We agreed that I would pay her back half of the amount once I graduate and get a job.”

A study done by the National Consumer Law Center said “The Student Loan Default Trap” monitored 40 individuals who were in default on federal student loans.

The study was done over a year beginning May 2011 and found 80 percent were unemployed, 85 percent received public assistance, 69 percent said neither parent completed higher education, and only 47 percent completed their college education.

When asked if the student loans in default should be paid back at all, 47 percent said they did not believe they should pay back the debt, according to the NCLC. The average age of the borrowers was 43.

The numbers showing less than half of those surveyed not completing their attempt at a college degree also reflects the current status of many CSUN students.

Joshua Mendoza, a senior history major, said he currently owes $9,622 in student loans.

“I haven’t borrowed a huge amount because I don’t want to risk not being able to make the payments,” said Joshua Mendoza, 25. He said he will have to begin payments in 2014, and his hope is to have a full-time job as a teacher and to set up a loan payment plan with the loan company, Nelnet.

Alexandra Johnson, a senior English major, said both she and her parents took out student loans totaling almost $50,000 even though her family’s income could have covered the cost of college.

“My father thought we would need more money to pay for college so we took out the loans,” said Johnson, 23. “College ended up being cheaper than we thought, so now we still have these loans.”

Johnson encouraged students to consider the unsteady economy and not take out a loan in the first place if they doubt whether they will be able to pay it back.

“I think all students deserve some kind of financial aid,” Johnson said. “But I don’t think 10 years is a plausible amount of time to pay it back if students aren’t getting work.”

For more information on money management, students can visit the resources page of the financial aid and scholarship department or visit the department in Bayramian Hall.