Last Updated Feb 28, 2011 6:00 PM EST
I never expected to spend a lot of time examining the fallout from student loans. On the surface, they are a great deal:
Students may get a below-market rate; they generally owe nothing until six months after they graduate and they may be able to defer payment for hardship reasons for up to three years. The interest on the loan is tax deductible and, assuming you graduate, the investment should pay off with a better job.
But far too many young people don't understand the loan process or they abuse their access to this easy money and end up paying for their mistakes for several decades or longer.
There are plenty of statistics on rising student debt and studies that show how this debt leads to stress and unhappiness. My goal is to put a face on this data, and to do so by focusing on ordinary people and relatively small sums of money to illustrate how easy it is to trip up.
Meet Leslie Jacobs. The only child of a stockbroker father and travel agent mother, Leslie Jacobs was raised in an upper middle-class household in New Britain, CT, in the 1960s. When she went to college, anything seemed possible. Extensive travel with her parents had given her an appreciation of foreign cultures and the arts; she loved being a student and dreamed of working in the theater and becoming a playwright.
After finishing high school, Jacobs was offered a full scholarship to attend Pace University in New York. But because her father had passed away a couple years prior, she chose to stay close to home and be near her mother. She enrolled at the University of Bridgeport, a private institution that when she attended charged $12,000 a year.
To make it work, Jacobs would have to supplement what money the family had saved for her education with student loans, and she never gave it a second thought. Many of her friends were borrowing to go to college. Besides, she wouldn't have to start paying anything back for years and when that time came she figured she'd have a great job. While in college she also started taking on credit card debt; she missed enough payments at one point to get a nasty bill collector call, which brought her to tears.
Jacobs managed to get her credit card issues under control after that, and when she graduated with an Arts degree her student debts totaled just $19,000. She went to work at Hartford Insurance Co. and began paying down her student loan balance. But she had grand dreams, and working in the insurance industry was not going to help her achieve them.
So she soon quit her job, borrowed another $10,000 from the student loan agency Sallie Mae and went back to school full-time, eventually earning a graduate degree in Liberal Studies from Wesleyan University in Middletown, CT. "It was my way of avoiding life," she says now. "Being a student was so much fun."
With her graduate degree she landed work at the Hartford Stage Co., where she hoped to realize her dreams of becoming a playwright. "I went with my passion," she says. "But unless you're Tom Hanks, you don't make a lot of money in the theater." She struggled to keep up with her loan payments and ultimately had to leave the theater to make ends meet. She wound up becoming a union official in the healthcare field. "I gave up my dreams," she says. "I just decided it was time to get back to reality."
That was in 2001. By then she had been making minimum payments on her student debt for most of two decades, and because she deferred payments for a period in the middle 1990s her student loan balance was virtually unchanged from the day she received her graduate degree. In effect, all she had done was pay interest.
With her union job, she began to get serious about whittling away the balance and she was making progress with monthly payments of $400 until 2008, when her job was eliminated and she again deferred payments.
Leslie Jacobs is now 51 years old; she hasn't made a payment on her student debt in nearly three years and because the interest owed keeps accruing, her student loan balance stands at $51,000. That's nearly double what she owed directly out of grad school some 30 years ago.
What toll has the debt she graduated with taken on her life? "Well, first of all, I don't talk about it," Jacobs says. "I have never opened up to anyone before, except one friend after she mentioned that she still had student debts too. I'm too embarrassed. I'm 51 and still paying my college debts."
She blames the stress from her loans for certain health issues, including being overweight. "I used to smoke and drink; now I just eat. You numb the pain because you're totally ashamed." She also regrets many ordinary missed opportunities. Her friends have nicer homes and cars. She passes on girlfriend getaways because she can't afford them. "The debt just colors everything I do," she says.
And nowadays her dreams are the real deal, featuring impossible hopes for a movie-like ending. She buys lotto tickets every week, seeing them as her best shot at getting out of debt. "Sometimes I wish some really rich person would look at my story and say all right, I'm sending you a check for $50,000," she says. "I'd say just send it to Sallie Mae. I live for that day." Jacobs has also gone to the casinos in Connecticut praying for the best. "Could you imagine winning all that money and not having debt?" she muses. "That would the greatest thing."
Jacobs is not a slacker. She's always worked or looked for work. Today, she owns a small Internet-based organizing business called Les is More, and she expects to resume payments on her student loans when the economy improves and business picks up.
In the meantime, she has cautionary words for all students going into hock. "I tell them go to a state school for a couple years. Do not take out loans. Do not burden yourself like that. I figure I'm going to die owing money to Sallie Mae. They'll tell you can pay it off. But you just don't make enough money in your 20s."
Okay. I have nothing against borrowing to go to college. I'm aware of the raging debate over whether higher education is worth the money. But I still believe it is the best investment a young person can make. However, young people and parents alike need to understand what they are getting into. They need to understand what it will take to repay the loans and weigh that against their prospects for a suitable job. For a great many students, private universities may not be economic.
In Jacobs' case, borrowing to pay full tuition at a private school with the goal of working in the theater -- especially with a scholarship on the table -- was a disastrous decision. Her preferred field doesn't pay enough to justify the expense. And deferring payments only compounded her problems. Jacobs didn't appreciate how quickly accrued interest would balloon her balance -- or how difficult repaying even her modest loans might prove.
Photo courtesy Flickr user alancleaver.
More on MoneyWatch:
Â· Student Loans: How They Changed One Life for Decades
Â· Student Loans? First Pass This Test
Â· College: The Flawed Case Against Getting a Degree
Â· Top 6 Signals That a College Student is Abusing Credit
Â· The Top Reason Kids Don't Learn Money at School
Â· Teaching Kids About Money, What We're Up Against
Â· Financial Education Takes a U-Turn
Â· Taking Financial Education to the Next Level
Â· Financial Education: Where We're Headed