By: Diane Dietz
College students took out more in student loans in 2013 and graduates defaulted on higher levels of debt, a spate of year-end studies suggest, making debt a major preoccupation of the so-called millennial generation.
Banks wrote off nearly $14 billion in student loans as uncollectable in the first eight months of 2013, up 46 percent from the same period in the previous year, according to the American Banker industry publication.
Students borrow more than they can pay back to attend universities because they’re following expectations set for them by parents and teachers, according to leaders in the University of Oregon-based League of Educators and Students Slashing Tuition, or LESS-T.
“They’re told that without a college degree they won’t be able to make a good wage later in their life,” said Judith Lechner, a UO graduate teaching fellow in the UO Department of German and Scandinavian studies and a LESS-T co-founder.
“It’s a vicious cycle,” she said. “This promise of a really good job later makes students very vulnerable to take out more and more money.”
After graduation, students find the accumulated loans are a serious problem, according to an annual Harvard Institute of Politics survey of 18- to 29-year-olds, dubbed millennials.
Student loan debt is a “major problem,” according to 58 percent of the 2,089 randomly selected young adults in the Harvard poll.
An additional 22 percent considered student debt a “minor problem,” while only 3 percent of those answering the survey found student debt no issue at all.
“I would say it’s a major problem,” said Tatiana Skomski, a sophomore studying public relations at the UO. Both Skomski and her parents, who live in San Diego, have taken out loans.
Skomski said she’s not sure how much she’ll owe upon graduation, but she’s worried about it.
“I kind of just hope that one day it will be worth it — and I’ll be able to pay it off,” she said. “But you’ll never know when it comes to debt, and that’s a scary thought.”
Until the last couple of years, the 40-year compounded average annual growth rate for tuition at the UO was 7.5 percent, Reynolds said.
Millennials, meanwhile, face a gruesome job market — a 12.5 percent unemployment rate for ages 20 to 24, when the overall jobless rate is just over 7 percent, according to American Banker.
“The fact is that most of these new graduates are not going to find jobs that will pay them an amount that will allow them to comfortably pay (loans) back,” Reynolds said. “They are in a tough spot. They are probably going to have to be ready to accept something different than what their parents had.”
A plurality — 39 percent — in the Harvard study placed blame for their rising student debt on their colleges and universities, according to the Harvard study.
“We were surprised at how quickly the costs were rising. In four years, seniors are paying 40 percent more than when they started as freshmen,” Lechner said.
LESS-T investigates the UO’s revenue and its spending, for instance, examining the growth in administrative spending and the additional costs associated with the crop of sports facilities built by donors in recent years.
“Everyone loves Phil Knight for giving us all these things and a great football program — without really looking at where the continuing costs of those are coming from,” said Dana Rognlie, graduate teaching fellow in the UO Philosophy Department and co-founder of LESS-T.
Rognlie leads a newly created Associated Students of the University of Oregon task force on tuition and fees, which is meant to keep tabs on university tuition and fee setting as generations of students pass through.
Rognlie is also a graduate student representative on the university’s own Tuition and Fee Advisory Board, a group that makes recommendations on tuition and fee levels to the university’s governing board.
LESS-T’s goal is to educate students on why and how their tuition continues to increase and to bring student influence to bear on university decision making, Rognlie said.
In the Harvard poll, 32 percent said the federal government — which makes 90 percent of student loans — is to blame for the rising debt.
In the private lending sector, delinquency for auto loans and credit cards have fallen to prerecession levels while student loan defaults continue to grow, according to American Banker.
Ten percent of respondents in the Harvard study placed blame for rising debt on students themselves. Some students take out more in loans than they need and fail to use the money wisely.
Lechner, who agrees students waste their money, said part of the problem is age and maturity.
“Graduation is so far away when you are a freshman,” she said. “It seems like forever — and you are under the impression, because everyone tells you that if you do this college thing right, there will be an awesome job for you. A lot of people really believe that. It feeds into their carelessness.”
Finally, 8 percent in the Harvard survey said state governments bear responsibility for rising student debt.
“We’re seeing a trend of lower state investment per student, higher tuition and then higher debt. That had been going on even before the recession,” said Jen Mishory, deputy director of Young Invincibles, a Washington, D.C., group that advocates on economic issues on behalf of millennials.
In Oregon, college tuition has risen 40 percent in five years, Mishory said, while the per-student state appropriations to universities dropped by $1,800.
“I mainly blame the state, the Oregon state government. They’re setting the budget,” Lechner said. “The state at some point lost interest in financing the schools. They cut the budget. They spent more money on the prison system. … As soon as the state disinvests, the tuition goes up.”
Skomski, however, said she doesn’t buy that excuse. “It falls on the university and how they want to spend the money they have.
“The university wants to stay new and up-and-coming and they want students to want to go to the university, so they have to spend a lot of money on things that are going to affect people’s tuition.”
Jim Brooks, UO director of financial aid and scholarships, was not immediately available for comment.
Whoever is to blame, Reynolds said, ultimately taxpayers will bear the costs.
“Unless we start to see more significant economic activity where these folks coming out of college will be able to get the better-paying jobs — those defaults and charge-offs are going to continue to go up, and, yes, you could see it reach a crisis level.
“Eventually, Congress is going to have to address it. If they don’t, the taxpayers are going to be footing the bill, and there’s going to be some kind of (financial) debacle, ‘Like, holy mackerel, look at all the money we’ve had to throw in here because folks aren’t paying their loans back.’ ”