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EAST LANSING, Mich. — Josh Tolbert graduated from Michigan State University three years ago with an engineering degree, a souped-up Dodge Cummins truck, memories of spring breaks in Panama, Hawaii and Mexico -- and $110,000 in debt.
Tolbert, now 25, hardly lived student life on the cheap. One year he even lived in an off-campus housing development with sprawling, neatly tended grounds that featured free tanning services, three swimming pools, hot tubs and a hockey rink.
While he worked summers to help support his lifestyle, there was another key factor at play: taking out loans from banks and credit card companies eager to shower him with easy cash.
"I knew that I could borrow the money I needed to live," said Tolbert, who kept a credit card nearly maxed at $3,500 during his senior year.
"I planned it this way," he said. He now has a solid job as a project manager at an engineering firm outside Lansing, making $50,000 a year. His loan payments total $1,200 a month.
Few would deny that student-loan debt in the US is a huge and growing problem. The cost of education has jumped 585 percent since 1985, while enrollment in degree-granting schools increased 37 percent from 2000 to 2010. A report released last month by the Consumer Financial Protection Bureau showed that federal-backed student-loan debt is now over $1 trillion.
While much of the money borrowed by students goes directly to universities and colleges to cover tuition, the cash is also filling some other coffers. In a rarely reported development, the vast student-loan sector is helping prop up retail stores and travel companies in a bubble of spending around college towns across the country.
Even housing developers have gotten in on the deal, as some free-spending students are eager to spend borrowed funds on expensive housing -- fueling a property boom as new construction goes up near college campuses. Some multilevel luxury spaces aimed at students can rent for more than $1,000 a bed each month. At the University of Texas at Austin, student properties near campus go for an average of $907 a month this year, according to apartment market researcher Axiometrics.
"We never had companies that only do off-campus housing until the mid-'90s," said Jay Denton, head of research at Axiometrics. "Off-campus housing didn't cater to the students. But as on-campus housing began to fill up, there was this pent-up need for off-campus apartments, and the developers began to try and one-up each other to get that market."
The money to pay for this increased push for luxury came "either from getting that loan or from parents with money," Denton said.
Yamila Gottig, a 21-year-old senior at the University of Florida, uses her student-loan money to live with a roommate in a two-bedroom place in Gainesville that features granite countertops, upscale appliances, private parking and a short walk to campus.
"Yes, it is luxe," said Gottig, who pays $525 in rent to live in Lion's Gate, a condo development where most two-bedroom rentals go for $1,300 to $1,400 a month. She gets a deal on a two-bedroom at $1,100. "I'm giving my parents a break on paying my expenses by taking out loans to live."
The image of the starving college student is being challenged by that of the well-heeled or loan-dependent student who subsidizes the college experience with borrowed money that goes into the hands of developers, retailers and travel providers. Some brands, such as American Apparel and Urban Outfitters, often play for students by renting costly storefronts on student drags rather than malls in outlying suburbs.
"There’s been a big trend in growing relevant retail into college towns, in the vicinity of the campus," said Antony Karabus, founder of Karabus Management, a retail advisory firm. "The kids aren't starving anymore. Kids are taking out large student loans, and they have fun money for clothes, electronics, whatever they want."
It's part of a strategy for American Apparel, where spokesman Ryan Holiday acknowledged in an email that "at least 90 of our 250-plus stores are near college campuses or schools of some kind."
But marketing aggressively to students -- especially those who might be spending borrowed resources -- is fraught with controversy. In the 2009 Credit CARD (Card Accountability Responsibility and Disclosure) Act, banks' actions earned them a provision in the legislation prohibiting them from issuing a credit card to anyone under the age of 21 unless that person has proof of a way to pay debts.
That, however, does not stop some determined students who are keen to tap into the easy money being offered them. There are many tricks they can use to dodge the regulations.
"The intriguing part of that is that student loans allowed access to a kid's financial situation, so (companies) can cross-market the credit cards," said Robert Manning, president of the Responsible Debt Relief Research Institute. "Once they get a loan, the credit card companies know that they could afford to make the minimum payments."
Added Mark Kantrowitz, founder of FinAid.org, a website about college finances, “Students have told me they didn't need a cosigner for credit cards because their student aid counts as income."
Hoping for a bailout
Robert Borosage -- president of the Institute for America’s Future and a vocal backer of a crusade by Sen. Elizabeth Warren, D-Mass., to lower college-loan interest rates -- said the finance industry had put some students' financial futures at risk.
"There is no doubt there has been exploitation by banks who didn't tell kids how onerous a debt can be," Borosage said. "A lot of kids got into a hole they didn’t know they were getting into, and a lot of people were glad to get them into the hole. But I think this has sobered the next generation, who will be more aware of debt."
There are signs the trend might be peaking. Last week, JPMorgan Chase announced it was dropping out of the private student-loan market, leaving banks like Wells Fargo, Discover Financial Services and SLM Corp. to provide loans to students beyond the four-year limit of $31,000 for federal loans.
That should at least slow the freewheeling student borrowing the nation has seen in the past two decades and, in the process, perhaps put a dent in the finances of companies and developers that have enjoyed the benefits of big spending by some students.
"The student-loan market will be less effervescent than it was," Borosage said.
Still, there is plenty of debt to be settled, as the average student-loan balance across all age groups has gone up 58.5 percent since 2005, according to the Federal Reserve Board of New York. Some holders of this debt have one big hope: a bailout.
Joe Borri, a 51-year-old art representative from Farmington Hills, Mich., has heard it from friends of his two college kids -- a daughter at Michigan State and a son at Western Michigan University.
"A lot of these kids think the government is going to let them go on these loans," Borri said.
But is a bailout coming?
"Some politicians seem to imply that, and it's a seductive solution," said Richard Vedder, director of the Center for College Affordability and Productivity at Ohio University. "But if the government doesn't do it, no one knows who pays in the end other than the kids borrowing the money."
And these kids won't be kids forever. The Federal Reserve Board of New York reported in March that, as of the end of 2012, borrowers under age 30 carry $322 billion of the nation's student-loan debt, those 30 to 39 carry $321 billion, and those 40 or older carry $323 billion -- with 12.5 to 16.4 percent of the older group 90 or more days delinquent on payments.
Only 37 percent of federal student-loan borrowers from 2004 to 2009 were able to pay off their loans without postponing payments or becoming delinquent, according to a March 2011 report from the Institute for Higher Education Policy.
Borrowers who default on federal loans face the possibility of garnished wages, collection fees and seizure of state and federal tax refunds, Social Security and disability income, as well as other consequences. Such concerns, however, seem far from the minds of borrowers.
Borri's son, a senior, recently took out a student loan in order to live in a place Borri said is nicer than his own home, complete with an indoor basketball court. That is a far cry from his own college experience.
"Yeah, we had carpeting at my place in college," he said. "It was pizza boxes and newspapers."