"Debt Valley" is an occasional series looking at student loan debt in the Philadelphia region.
Every 28 seconds, a student in America defaults on a college loan.
By the time you finish reading these next three paragraphs, another young person will have slipped into default — an event that destroys credit, may delay marriage and children, home and car purchases, and even change the course of one's life.
Despite a booming U.S. economy and historically low unemployment, college graduates are defaulting on school debt at a rate exceeding 10 percent within the last three years. But the White House says that over the coming decades, more than 23 percent of undergraduates could default on loans issued this year. And one well-regarded economist recently pegged the ultimate default rate even higher, at 40 percent, as costs for graduate and undergraduate school climb skyward.
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College debt has long been cyclical, rising after recessions. But in recent years college debt has been on a sustained upward trajectory, even in good times. Forty-four million Americans have currently racked up $1.4 trillion in student loans, tripling the total from 2005. Education debt now surpasses credit-card debt and car loans and trails only home mortgages. More than eight million student borrowers are now in default, the government says, and up to 30 percent of borrowers are thought to be having problems repaying their loans.
The Delaware Valley represents a ground zero for America's student loan crisis, as Pennsylvania graduates rank No. 1 in the nation for student debt load, with an average $36,193 loan balance, followed by Delaware and New Jersey at third and 12th, respectively, a recent study shows.
Penn State, one of the state's flagship universities, ranks among the most expensive public colleges in the nation, leaving a trail of indebted graduates, especially from its satellite campuses.
Two of the country's largest loan servicers, Navient and PHEAA, the Pennsylvania Higher Education Assistance Agency, are based in Wilmington and Harrisburg, respectively. Both are routinely lambasted for bad customer service and are facing lawsuits from attorneys general and plaintiffs' lawyers asserting that they steer borrowers into costly loans and fail to give them the financial relief they are legally entitled to.
Decades ago, students could discharge loans in bankruptcy. But in 1984, Congress exempted government student loans from bankruptcy and put similar restrictions on private loans in 2005. That means that student debt now cannot be excused except under dire circumstances like death and disability. And if not repaid, student loans keep growing from the interest, creating a cancerous burden that can trap a person in poverty.
The student debt crisis has already begun curtailing the economic prospects of a generation, causing delays in achieving career goals, making charity donations, and saving for retirement, concludes a survey this month by the nonprofit Student Debt Crisis.
"When you put the word student in front of the word loan, people think it's harmless or somehow it's not a 'real' financial product. Nothing could be further from the truth," said Seth Frotman, former ombudsman for the Consumer Finance Protection Bureau, who quit in protest over the Trump administration's policies and is now fighting for student borrower protections. "When struggling borrowers fall victim to a rigged system, we treat them like tax cheats and dead-beat parents by bringing the full weight of government to bear, driving them into poverty by garnishing wages and seizing benefits."
What follows is the first in an occasional series of articles, describing a region where student debt holds far-reaching consequences for individuals and the economy. Some highlights:
Much of the cost of students' loans is invisible — it's what does not happen that can be important. Young Americans delay purchasing homes, don't repair homes they've already bought, or never start small businesses. They don't get married, have children, or save for retirement.
"Student debt has depressed home ownership among young Americans pretty substantially," said Zachary Bleemer, research associate at the Center for Studies in Higher Education at the University of California, Berkeley.
He blamed the "spectacular increase in the cost of attending universities" for the debt. "Thirty-year-olds are about 30 percent less likely to be homeowners than they were 15 years ago," Bleemer said.
Bleemer pointed to broader ramifications for the housing industry.
"If you're 28 and you are not buying a home, then those who are 35 can't sell. There is good reason to believe that student debt has moved up the [housing market] chain to affect housing overall," he said.
Small-business formation also may decline because of college debt.
"As people go through life, they take on debt to do things," said Brent Ambrose, a business professor at Penn State. But "if you have used up part of that debt capacity [for college], you may not be able to borrow more to start a new business."
In a paper cited by government economists, Ambrose showed that above-average student debt can dampen new-business formation by 14 percent.
Former students also can run up credit-card debt and miss out on job opportunities while their loans keep growing, said economist Dubravka Ritter at the Philadelphia Federal Reserve. "It's a slow grind in terms of the repercussions," she said.
Ritter could have been talking about Philadelphia resident Nicole Newman, who graduated from the University of Maryland in 2000 with an MBA and $32,000 in student loans.
But then life intervened. Her internet marketing start-up got swamped by the recession. The best job she could get back then was with a nonprofit, encouraging prospective entrepreneurs. But she couldn't afford the loan payments as she raised a family.
Today, those loans — after years of deferment, or not paying them, and now a monthly payment that doesn't cover the accruing interest — have soared to $69,000, more than double her starting amount.
"I feel like it was a booby trap," Newman, 45, said of her education.
Newman now has similar concerns about her daughter who is looking at colleges and has been offered a financial package from a Pennsylvania institution with significant loans on both mother and daughter. "I don't want her [at age] 45 and $69,000 in debt," she said. "That is just repeating the cycle."
Though U.S. lawmakers have enacted repayment options and even loan forgiveness, the administration of those programs has been rife with mismanagement, critics say. Many student debtors are startled to discover that their loans continue to rise despite their monthly payments.
Two of the biggest student loan servicers, the groups that manage and collect monthly student loan payments, are Navient, a publicly traded company, and a little-known state agency called PHEAA, which together service 47 percent of the nation's $1.4 trillion in student loans.
Most student borrowers know them on their monthly statements as Navient and FedLoan.
Other servicers include Mohela, and the recently merged Great Lakes-NelNet.
In 2016, Navient was prepared to pay $1 billion to settle a three-year investigation by the Consumer Financial Protection Bureau over claims that the company misled borrowers and made other mistakes servicing federal loans, according to the New York Times. But the settlement broke down after Donald Trump was elected president in late 2016 and the agency signaled it would loosen regulations for the industry, the New York Times reported.
Several state attorneys general have since filed suits to press their own claims. One federal suit by Pennsylvania Attorney General Josh Shapiro asserts that Navient steered borrowers into predatory loans with high interest rates and costly origination fees. It also incentivized its staff to push costlier loans that saddled borrowers with $4 billion in unnecessary interest, the suit says.
A Navient spokesperson disputes the allegations, saying that its incentive program was misconstrued, and that it will prevail in court.
>>Get in touch: Are you a current or former employee at Navient of the Pennsylvania Higher Education Assistance Agency with a story to tell us of the student debt crisis? Contact us confidentially here.
In August 2017, the Massachusetts attorney general filed similar charges against PHEAA, claiming that it has overcharged student borrowers and misprocessed loans, saddling borrowers with additional debt. "PHEAA has consistently shifted the consequences of the flaws in its servicing system and its processing failures onto the borrowers themselves," the suit says.
PHEAA spokesperson Keith New denied the allegations and referred questions on its servicing to the Education Department, which said it was working with FedLoan Servicing to improve customers' experience and outcomes.
If anyone can get good results from loan servicers, it's Catherine Martin.
A staff attorney with Community Legal Services in North Philadelphia, Martin deals with consumer debt issues. She borrowed more than $100,000 to put herself through the University of Virginia School of Law, and graduated in 2015.
Her servicer, FedLoan Servicing, run by PHEAA, consistently made mistakes, she said, and her loan record was plagued with errors.
"Every time I got on the phone with somebody, they were disempowered to fix it," she said.
FedLoan mistakenly recalculated her monthly payment to $2,500 instead, or about 10 times what it should have been or what she could afford based on her income-based repayment plan, she said.
Martin documented making 17 phone calls over five months. She said her barrage of calls has mostly fixed the problem, though she still expects it will eventually cost her several extra thousand dollars on her ultimate repayment.
"I am an attorney who actually is used to dealing with banks and municipalities on taxes and consumer collection agencies for consumer debts, and I am struggling to get through this," Martin said. "I don't see how anybody deals with these problems."
In an intergenerational aspect to the crisis, adult student debt holders in low- or modest-paying jobs such as Philadelphia police officers, EMTs, nurses, public or charter school teachers, are still paying off their school loans as their children enter college.
"My kid will be out of college and I will still be paying my undergraduate loans back," said Danielle Murray, 40, a reading specialist at the Gilbert Spruance Elementary School in Philadelphia. Murray graduated with an undergraduate degree from Temple University in 2002 and a master's in 2005 from Holy Family University, with $32,000 in loans.
Murray consolidated her debts about a decade ago under a 20-year repayment plan, expecting that after 10 years of working in the Philadelphia schools, she would qualify for the Public Loan Forgiveness Program. This erases federal student loans for individuals who work in lower-pay, high-need jobs such as schoolteachers in poor areas.
But when she called her loan servicer about qualifying for the program, that person said she was enrolled in the wrong program; She needed to be part of an income-based repayment program, not a 20-year repayment program.
Because of that, she lost all her time toward earning forgiveness and had to start over.
Her $32,000 in loans has declined to $20,406 after a decade of payments. But now she will be paying her loans well into the 2020s. Her son will begin college in a few years. "I am going to try and get him through college without loans, but it will be difficult," she said.
College dropouts may the hardest hit, according to research from the University of Pennsylvania. They leave school with no degree but plenty of debt.
And sometimes disputes arise with the schools.
Danielle Infantino left Drexel after two years and a debt balance of close to $60,000, after learning that she would have to pay an additional $17,000 for summer nursing classes. Drexel sent her an aid package for the year and a price, "then claimed it was a mistake. It was quoted for only three quarters. The second year of classes, they had made the same mistake again. We all knew that we had summer classes and they were supposed to be built into our financial aid package."
"And I didn't have the financial aid to cover it," Infantino said. Other students took out loans quickly to cover the balance, but Infantino couldn't afford more debt.
Infantino, 24, left Philadelphia this past summer, moving back in with her mother in Valley Stream, N.Y., while working and applying to local nursing programs.
Drexel spokesperson Niki Gianakaris responded to Infantino's case: "Four students enrolled in the program received 100 percent of their financial aid for the 2017-2018 academic year over three terms rather than four, leaving them with little or no aid for the summer. The university worked with students who reached out for additional assistance to cover expenses for the fourth term."
Students who didn't pass the course weren't able to immediately retake it because both sections were already at capacity, she said.
Among publicly supported or flagship universities, students who graduate from Penn State, Temple, and Lincoln Universities hold some of the highest debt in the nation, helping make this region a veritable Debt Valley for college students.
Those at satellite campuses did especially poorly. Penn State State-Shenango grads left school with $45,746 in debt, while Penn State-Hazleton grads left with $45,703 in debt and Penn State-Harrisburg's average debt totaled $42,315. But Penn State-University Park totaled $37,307 in debt, according to LendEDU.com's latest data.
Penn State spokesperson Lisa Marie Powers said the university believed LendEDU's methodology was "flawed" as it treated "all Penn State campuses as stand-alone institutions from which students do not move their enrollment."
She added that "students not only change their campuses in pursuing their academic careers, but also may transition between part- and full-time during their studies, and therefore require additional semesters to complete their degrees."
"The skyrocketing cost of college education – up nearly 400 percent in the last 30 years — is the primary reason student debt has surpassed auto loan debt and credit card debt," said Ryan Keene, vice president of lending at the Philadelphia-area Ardent Credit Union.
"At the same time, state funding for higher education has been unable to keep pace. Per-student funding in Pennsylvania fell more than 30 percent from 2008 to 2017, while the cost of tuition at public universities in the Keystone State has risen 22.5 percent over the same time period," he noted.
Given all the pressures, Judith Scott-Clayton, associate professor at Columbia University's Teachers College, estimates that "we could reach up to 40 percent [of student borrowers] experiencing a default" after 20 years.
Unquantifiable — at least at this point– is the psychic damage from student debt.
"The stress. The anxiety. The time and energy that borrowers have to devote to get out of trouble," she said.
The college debt system needs to be streamlined and simplified, adds Scott-Clayton, "so that students do not have to navigate this bureaucracy of paperwork."
Meanwhile, AARP, the chief lobbying group for senior citizens, has been pressuring the federal government to stop garnishing the Social Security benefits of older borrowers who defaulted on their loans.
One disturbing statistic from the Government Accountability Office: In 2014, 3 percent of Social Security recipients had their benefits checks garnished for student loan repayments. Student debt among seniors has risen fourfold in the last decade – currently $66 billion — according to SAGE Scholars.
"We consider it a looming threat," Lori Trawinski, director of banking and finance at the AARP Public Policy Institute, told Politico.
The Class of 2017 saw that average student debt per borrower ranged from a low of $18,425 in Utah to a high of $36,193 in Pennsylvania, according to LendEDU.com.
Mike Brown of LendEDU tracks student debt. He graduated in 2016 from the University of Delaware with a degree in history-political science and roughly $30,000 in loans. He pays about $300 a month on several federal loans at interest rates ranging from 3.15 percent to 4.4 percent.
"Once I graduated, my mom said, `You're taking over your loans,' " said the Jersey City, N.J., native.
His employer pays an additional $200 a month on his student loans, for a total of $500 a month, a benefit he calls "amazing. It's basically additional income."
More employers are offering millennials this workplace benefit. A recent IRS Private Letter Ruling makes it easier for employers to help workers save while paying off student loans. Employers can now make 401(k) contributions into accounts of employees who are also repaying student loans.
Some universities are picking up the fight against student loan debt.
The University of Pittsburgh this year has allocated $1 million to fund "Panthers Forward," aimed at reducing student loan debt.
For $5,000 toward federal student loan balances, 150 seniors at Pitt will be asked — but not required — to "pay it forward" via monthly contributions after they graduate. Pitt's tuition and board for arts and sciences students totals roughly $28,000 for in-state and $41,000 for out-of-state students.
Money the grads pay back will be reinvested to support current students and sustain the program. Full-time students in good standing are eligible for Panthers Forward, and must have received a federal loan to help finance their senior year.
"It feels better, it's students helping students, and it eliminates more troubling aspects of student loans," said Pitt chancellor Patrick Gallagher.
The bulk of the student debt in the $1.4 trillion is from graduate and professional students and in the for-profit college space, Gallagher said. He noted that the default rate "is highest for students who don't complete. That's mostly for poor-performing schools, and some that are more predatory. That's why there's been such a public policy outcry."
Tim Alexander, vice president of the Association of Independent Colleges and Universities of Pennsylvania, is spearheading "income share agreements" (ISAs) – a new model that reduces up-front tuition costs in exchange for taking a set percentage of income after graduation.
Purdue University's "Back A Boiler" program is perhaps best-known, but other schools – including Pennsylvania's Lackawanna College and Messiah College – have income share programs. To help implement this, AICUP is working with the education technology company Vemo, which partners directly with schools to help them design income share agreements.
Start-up businesses are also embracing technology to help younger Americans and their parents navigate the student loan labyrinth.
Newtown Square-based PayForEd last month launched a software program for financial planners to sort out the best options for paying back student loans.
"It is the first student loan repayment tool that helps recent graduates, married couples, and engaged couples navigate their various student loan repayment and forgiveness options," maintained founder Fred Amrein. "Most people don't realize there are over 126 combinations of repayment options for a single person and a married couple."