As a smart kid in New York City, David Acevedo won a seven-year academic scholarship to Horace Mann. His father was an immigrant from the Dominican Republic, his mother the daughter of parents from Italy and Cuba. Although no one in his family had studied at a private college, Acevedo graduated from his prestigious high school assuming that he would pursue a university education. In 1999 he enrolled in George Washington University's undergraduate school of business in Washington, D.C. He owes more than $100,000 in student loans. In 2012 his alma mater sued him in court.
"I was saddled with a lot of debt," Acevedo, now 32, explains over the phone. "But upon graduating — less because of an unavailability of work and more because of a fear of failure — I did not really fulfill the goal of getting a good job and a career. So I defaulted on my loans because I was not able to do that. Still to this day, I'm in that position."
Acevedo is one of more than two dozen students who were pursued by GWU in the courts in 2012 in an attempt to retrieve funds. Court records show that at least four East Coast institutions have brought court cases against former students — a trend that is becoming more commonplace as student debt has spiraled upward. In 2013 it totaled $1.2 trillion, according to the Consumer Financial Protection Bureau. But an opaque market in private loans and the difficulty in accounting for students who use credit cards or home equity to pay for college mean that the total outstanding debt may be much higher.
Although he enjoyed his education, Acevedo struggled with a lack of confidence in the years after college. When he returned to New York, he lived with his grandmother, who often cooked him dinner. He began to work with DJs, managing the plasma displays that accompanied their nighttime shows, and set up a company to handle these operations. In 2008 the economic crisis snuffed out demand for his business, and the venture foundered.
Today Acevedo works for a telecommunications provider and lives in upper Manhattan. After paying rent and his utility bill, he says, he has $68 a week to spend on food and other items. "That's not living," he says.
Bills and letters went to his mother's house and remained unopened, including a number of notices from District of Columbia courts. In 2013 a judgment ordered him to pay $7,050: $3,084 from 2004, which he says was probably a Perkins loan, along with interest, attorney fees and court costs. (His other loans are private loans.) "For many years I simply ignored it and swept under the rug the letters or the demands for the money for pragmatic reasons. I was totally out of money. So these proceedings were completely uncontested," Acevedo says.
Federal Perkins loans are available at schools in all 50 states. They were created to assist college and graduate students in exceptional financial need. As student debt has grown, so have loan defaults, which rose nationally from 8.32 percent in 2011 to 11.08 percent in 2012. Defaults have occurred at Ivy League universities and community colleges. At Harding University in Arkansas, 323 borrowers defaulted in 2012, representing $677,161; at Harvard, 402 borrowers defaulted, owing almost $3 million.
The U.S. Department of Education requires schools to comply with due diligence regulations in collecting Perkins loans, including litigation if appropriate. Not every school takes that step, although Yale, the University of Pennsylvania and Temple University have all sued students, court records show.
"It just shows how student debt is a huge issue for our generation, and we’ve got to figure it out," says Rory O'Sullivan, policy and research director at Young Invincibles, an organization dedicated to expanding opportunities for young people. "It really is a symptom of a much broader problem."
But the colleges are in a tricky position, says Justin Draeger, president of the National Association of Student Financial Aid Administrators. Because Perkins loans involve federal funds, schools have a responsibility to collect what is essentially taxpayers’ money.
Schools also have a more pragmatic motivation. In 2011 and 2010, no new funding was added to the Perkins loan program, meaning that the only money available to new students comes from the funds that alumni repay. "If funds aren't coming back in, that means there's fewer funds available for future students," Draeger says.
The practicality of suing students who are in default is questionable. Patrick Kavanaugh, a lawyer representing GWU in many of the recent cases, did not want to comment. But Joshua Upin, who defended a student against the University of Pennsylvania, is skeptical about the value of pursuing such cases. For one thing, young people often don't open their mail and may therefore be unaware that schools have initiated proceedings.
"It's a really desperate situation because both sides are kind of screwed, if you will. The institution that made the loans did so on a completely unsecured basis, and they're going after people who are young and without wherewithal, so the likelihood of successful recovery of anything is pretty low, probably approaching zero," he says.
"The lender is paying the lawyer to do the case, which is more money but ultimately doesn't really go anywhere, as far as dollars and cents are concerned. And then what will happen if they get a judgment against the student debtor is that it will go onto their credit record, which is a forever black mark against that person. Which significantly reduces their ability to be successful at whatever they choose to pursue and then pay the judgment."
Upin defended pro bono a former student of the University of Pennsylvania, who owed the school $3,000 in a federal Perkins loan. The student, Ronnie C. Casanova, was an immigrant from Honduras and had gone to New York City as a boy. He was in his 60s when he embarked on his quest for higher education, pursuing a degree at Drexel University before getting accepted into the graduate program at UPenn.
During college, Casanova suffered from bipolar disorder, diabetes and a constellation of other conditions. Shortly into his time at Penn, it became too much, and he dropped out. Says Upin, "His mistake was not really telling anyone what was going on. He just kind of stopped showing up to class."
The school sued him for his Perkins loan, but Upin was able to get the case dismissed on the basis of Casanova’s medical conditions. Upin (who still has significant student loans from his own education) says he was "nauseated" by the fact that UPenn, with its sizable endowment, would pursue a former student like Casanova.
In an emailed statement, Ron Ozio, the director of media relations at UPenn, points out that in 2008 the university introduced a no-loan policy for undergraduate degrees. Most Perkins loans are now awarded to graduate and professional students, he says.
Having won the case, Upin says his former client continues to grapple with his mental health and is unable to work. "Really, the net benefit for him was kind of pedestrian. He was simply relieved to have this off his back. He's not living high on the hog as a result of having gotten out from underneath this thing."
Student loans are unlike other consumer loans in that there is no asset to repossess. The loans are exempt from the bankruptcy code, and only with great difficulty will the usually young debtors ever be released. The experts' advice for students facing default is to talk to their colleges. "Students can come to alternative repayment plans with their institution," says Draeger. "I think there's a natural tendency to hide from the issue, but in this instance it’s much better for students to reach out to the institution or servicer and let them know what their circumstances are."
With student-loan delinquency and default a lagging indicator for the economy, Draeger says that more defaults will probably occur and that as a result more schools are likely to see their alumni in court.
Regardless of what sort of agreement is reached, the challenge of paying back such large sums is immense. Acevedo says he would love to pay off his loans but can do so only if he becomes wealthy, an increasingly unlikely prospect. Graff expects to wallow in debt for a few years and, when he begins to earn more money, to have his wages garnished until he ultimately repays the loans. "I haven't even prepared myself for the light at the end of the tunnel. I don't know how long this tunnel is," he says.
For the institutions, the outcome is also uncertain, as student debt continues to spiral upward. "There may not be any logic to the collection effort," Upin says of the schools that sue their alumni. "They're doing it because that's what's been done in the past, but maybe it's a model that doesn't apply to this kind of situation because it's beyond that."