From Student Loan Fees to Master's Degrees: The Future Undergraduate

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Last year, Meredith Cohen was leaving yet another discouraging job interview when a billboard in Center City caught the young college graduate’s eye. “Community College of Philadelphia: Achieving the Dream,” it declared.

            Since graduating in 2010 from Widener University, where she earned a bachelor’s degree in psychology, Cohen says she had been growing increasingly anxious about her professional career, or lack thereof.

            The six month grace period awarded to borrowers of federal student loans had just ended, and Cohen’s full-time job as a restaurant shift manager was not providing enough to pay bills.

            “I was so desperate, I was interviewing for jobs I didn’t even want,” says Cohen, who went to an estimated 30 interviews before moving back to her mother’s South Philadelphia row home.

            Around this time, Cohen says she also became aware of just how damaging her student loans were, although she admits Widener’s steep tuition – exceeding $30,000 per year – should have caused concern earlier.

            “It was naïve, but I thought because I had subsidized [Stafford] loans and therefore wasn’t required to pay interest, that I would be able to afford my debt, regardless of tuition costs,” she says.

            But Cohen’s life after graduation didn’t work out as planned; the job offers didn’t come, although the student loan bills did. So like many other college students today, Cohen began considering alternative options.

A 2011 U.S. Bureau of Labor Statistics study shows the unemployment rate of bachelor’s degree graduates, aged 20 to 24, as being 7.7 percent, and master’s degree graduates of the same age group with an unemployment rate of just 3.3 percent.

It seems reasonable, then, for students to continue their higher education in hopes of being offered more job opportunities. However, in a nationwide survey of 872 adults ages 18-34, conducted by Lake Research Partners and Bellwether Research and Consulting, nearly three in four college graduates say they have more student debt than they can manage.

Meanwhile, 80 percent of young adults consider attending college after high school more important now than a generation ago but also say college has become less affordable in the past five years.

In one study, The Institute for College Access & Success (TICAS) found two-thirds of graduates in 2010 utilized student loans and had an average debt of $25,250.

“Today, as job quality has declined for all but those with college degrees, higher education is too often a debt-for-diploma system that puts an immediate obstacle in front of new graduates as they start their working lives,” says Tamara Draut, vice president of policy and programs for Démos.

Whether starting a college career or continuing educational programs, many young adults are turning to community college as a cheaper alternative. The U.S. Department of Education credits community colleges with facilitating more than 40 percent of all undergraduate students in the nation.

According to the Pennsylvania Commission for Community Colleges, more than 200,000 credit students attended the state’s 14 community colleges last year.

However, TICAS conducted a nationwide study last April and found students at community colleges much less likely than their peers at four-year schools to get the financial aid they need. In 2011, more than one million community college students were denied access to federal student loans.

Cohort Default Rates (CDRs) measure a school’s number of borrowers, from a given class, who default within two years of entering repayment. Students have 270 days after the designated grace period to make a payment or they default on their federal student loan.

“Reputations often prevent community colleges from participating in loan programs, which tends to affect the students who need assistance the most,” says Tara Sarica, a Financial Aid Advisor at Drexel University. 

According to TICAS, federal student loans have fixed interest rates, flexible repayment plans, and generous forgiveness programs, compared to private student loans distributed by banks and lenders, which typically have expensive and risky interest rates.

The Texas Guaranteed Student Loan Corporation reports that CDRs were created to prevent higher education institutions from enrolling students unable to benefit from the degree or repay federal student loans borrowed.

“By implementing a measure that determined schools with high CDRs, Congress originally guaranteed students the ability to make good on their college investment,” says Sarica. But schools with excessive default rates may lose eligibility in federal student aid programs, according to the U.S. Department of Education.

According to The Pennsylvania Higher Education Assistance Agency, Subsidized Stafford Loans are awarded based on financial need and require the federal government to pay accumulated interest. These are generally preferred over Unsubsidized Stafford Loans, which can be awarded to anyone but hold borrowers responsible for repaying all interest.

"By providing subsidized loans, the government tries to protect students,” says Jane Shaw, president of the John W. Pope Center for Higher Education Policy. But Shaw believes the effects can also be harmful by increasing demand and thus causing unrestrained tuition costs.

The Obama administration’s Income-Based Repayment plan (IBR) strives to make student loan payments more affordable, by capping the monthly payment based on income and family size, according to the U.S. Department of Education.

Yet in general, students are facing discouraging prospects: the Federal Digest of Education Statistics reports that only 55 percent of first-time, full-time bachelor's degree seekers at public institutions finish their degree within six years.

According to Neal McCluskey, associate director of the Center for Educational Freedom at the Cato Institute, legislators have even considered expanding bankruptcy eligibility to curb the “skyrocketing tuition rates” of postsecondary institutions.

But McCluskey believes the best solution for the government to assist students “crushed by inescapable loan debt” is to simply lower federal aid levels.

In addition to borrowing student loans under conditions she didn’t fully understand, Cohen says her progress was further inhibited by her decision to attend an expensive university in the midst of an economic recession.

“If I could rewind to my senior year of high school, I would tell my younger, dumber self to evaluate my options, and to plan for the worst,” says the older, wiser Cohen.

But she didn’t know then what she knows now; there are affordable ways to receive an education. So like more and more students each day, Cohen is planning her next move while attending community college.

Returning to school has delayed Cohen’s hefty student loan bills, allowing her to work part-time and still manage to live on her own, neither of which was possible a year ago.

“I ruled out graduate school immediately when I saw the sum of my [student loan] debt, but I guess it took being broke and utterly hopeless for me to reconsider the opportunities available,” says Cohen.