Wednesday, June 23, 2010

Trapped in Debt

by John Glaser

Cryn Johannsen has posted some frightening student loan testimonials on her blog, Education Matters. The testimonials are excerpts from her new paper, The Plight of Current Borrowers: An Appeal For Immediate Relief. Here is one story of how one woman tried to utilize higher education to improve her life situation, but got buried in a mountain of debt that has caused a lot of pain and heartache, in addition to that caused by health problems:
Today I am 46 years old...I had no idea what I was getting myself into when I took out student loans to finish my BA

I went on to get my Master’s in Counseling Psychology, which was paid for by my employer, Thank God. I found to my dismay that I just couldn't make enough money on a salary of $25,000 as a counselor to make the loan payments and take care of everyday life. My cancer in 1986 left me thousands in debt. In 1991, I ended up filing a chapter 13 for my medical bills. Subsequently, a woman at Wachovia Bank noted this, and accidentally put my loans in default instead of deferment.

My life became a nightmare for the next seven years. This was before the regular use of computers. I was on the phone for hours on hold, but I couldn't get anyone to talk to me. Creditors treated me like a leper. I was actually told by a well meaning person that "your loans have been bought and sold so many times, they are probably in a shoe box in someone’s closet."

Finally in 1995, after getting nowhere, I contacted the US Dept. of Education. I literally sent them a shoebox full of notes about my conversations and letters I wrote trying to ask for help. They eventually tracked them down and subtracted the penalties, but not the interest, so my $25,000 turned into $45,000.

I tried to make the payments on a counselor's salary, even on an income contingent plan or any plan I could find, but it was too much money on $28,500 per year. I made payments whenever I could afford to but they never seemed to count because they were never enough to cover even the interest. My payments were more than my rent! I have deferred and been in forbearance so many times it's not even funny.

I had to declare bankruptcy again in 2000 due to lack of finances and everyday living, and ongoing medical issues with my cancerous nodules on my thyroid which prevented me from working for 7 months in 1999 – (once) again, deferment, hardship forbearance, more compiling of interest.

I wanted to go into the NHSC (National Health Service Corps) which is a program for health professionals to go into public service into rural, urban (low income areas), or prisons to work for a period of time in exchange for loan forgiveness. I had a license in Michigan, but they changed their policy and you had to already have your national independent license.

I couldn't afford to stop working to get my PhD, so after 10 years of getting nowhere and the threat of default, I went back to school at age 41 in 2004 and got my MSW so I could be in the NHSC. This was not something I wanted to do, but I wanted to get my loans repayment [sic] and I already had devoted my life to public service, it seemed the logical thing to do. Another Masters would increase my loans, but I could pay it back through this program.

I have new student loans and consolidated them. Now, my loans have ballooned to $160,000. I can't afford even to make the smallest payment because I wasn't making enough on a social worker’s salary. The whole thing is insane.

I put off and sacrificed most things people my age have; a family, vacations, stocks, savings, investments, retirement and most of all children; because I had to pay my loans. My friends have watched me save and scrimp and never get anywhere.

There were times I had to decide whether or not to buy food or pay my loans. Pay the heat or pay the loans. Get my medication or pay my loans. Eat rice and live in the dark . . . I can never get good credit rates because this $160,000 shows up on my credit.

I have been made to feel like dead beat. I have felt very ashamed. I feel as though I can never get ahead. It would be nice once in my life to have some nice things, or not always having to worry about defaulting and having my social work license taken away, and then I can't work. I still have nightmares about this.
I'm sure there are many more stories like this one floating around out there. Stories of real people who buy into the dream of higher education providing them with pecuniary returns, only to be sadly disappointed. This case reveals that there are in fact diminishing returns to higher education.


Steve said...

One ancedote reveals that higher education is a worse value than it used to be and, by insinuation, that higher education is a bad value period. Or did I misunderstand?

Daniel L. Bennett said...

I believe what Mr. Glaser meant by "there are in fact diminishing returns to higher education" is that higher ed has value (at least for some people), but that at some point, there are diminishing returns.

Milo said...

The initial student debt may be justified by innocence, but surely by the time she went back for the MSW she understood how little she could earn as a social worker. Where is the educational bartender to cut off the supply of loans to those who have over indulged?

capeman said...

So it appears this student had $25K debt in 1986 and $25K income. This should have been manageable -- 10% of gross income for debt service. A lot of people back then lived on less than what would have remained.

Then she had the misfortune to get cancer around 1986 at age 22. Very sad, but an unusual situation.

It's kind of perplexing how she would run the debt from $45K in 1995 to $160K now, to pursue a graduate degree, especially with the history of terrible health problems. This is not run of the mill financial mismanagement.

I don't know what this case is supposed to prove, except that some unfortunate people have very bad luck in life, together with very bad financial sense.

Daniel L. Bennett said...

Milo - Great quote:
"Where is the educational bartender to cut off the supply of loans to those who have over indulged?"

Capeman - haven't seen you post in awhile, glad to have you back. I agree with you that in this persons case, getting more education, and hence adding more debt, was likely a bad financial choice.

Alexandra said...

re: milo
I agree with your comment, to a degree. I too, have loans over 100K, 40K of which was added overnight when i went into default. The year I went into default i made $6000. I was on economic deferment until i moved and the renewal forms got lost in the mail (i moved to a rural area and had general delivery for 2 months). They told me (wrongly) that there was nothing i could do and i could never get another loan. When you have an MA but make between 6-9$ an hour, and going back to school is the only way to get licensure which MIGHT bump up your income to maybe 35 or 40K, that is a tempting option. I have been "planning to go back to school" for 5 years now, but can't afford it on my own. I was admitted to Columbia but declined due to their hilarious statement that "no one in this program doesn't regret going into massive debt". I went to a state school but still had to take out loans due to not being allowed to work and there being higher living expenses. I worked 3 jobs to put myself through undergrad and still had to take out loans. When no one will hire you b/c you don't have a college degree and the jobs on offer pay a pittance, school looks pretty good. At least you won't starve for a couple of years.

Alexandra said...

@Milo - I agree with your comment to a degree - I was offered a placement at Columbia for grad school but declined, thanks to the admissions officer's faux pas" there isn't a single student in the program who doesn't regret going into massive debt to be here". So i went to a state school, but still had to take out loans (can't work as a grad student out of department, they pay you $500 a month (woot woot), higher living expenses in a college town). My loans went into default due to my moving to a rural area, having general delivery mail for 2 months, and not recieving my renewal notices in time. I made 6K that year. I don't even remember how I survived. They told me wrongly there was nothing i could do and i would never get another loan. Overnight they added 40K in penalties onto my loan. I am being charged $500 a month in interest. I was making $300 a month payments till they told me i needed to make $800 a month payments (or they would report that i was not asking my family for money), to which i replied, that is 50% of my 24K a year income, i will be homeless and I can't do it. They literally would not accept anything less. I think the monetary value of education is WAY OVERVALUED, and the actual meaning of the word education is undervalued. But having just turned 40, don't have a house, given up on having children with this debt, the mental strain of feeling like i am only living to pay off this debt is ridiculous. I know im not the only one out there. I've been wanting to go back to school to get teaching licensure but can't afford it on my own, and can't take out a loan. I'm not likely to raise my income to a level where i can live reasonably and pay off the debt without it. Sorry, but 25K a year is enough for one person, but not if your car breaks down, or you have to move and put down 1500-3000 in rent, or god forbid want to take a vacation (i haven't had one in over 10 years, except car camping). Or, if you have to pay for medication b/c either its expensive and your insurance won't cover it, or you don't have health insurance in the first place (i've had both situations). And having ppl treat you like an idiot b/c you only make 25K or so just adds insult to injury.