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‘Debt for diploma’: The new reality for college graduates

Forty million Americans have student debt, owing more than $1 trillion nationwide. What are the long-term costs?

High school senior Karen Gonzales of Centreville, Virginia, will be attending Radford University this fall as the first member of her family to go to college.

As the daughter of two Peruvian immigrants, neither of whom has ever set foot on a college campus, she said not going to college was never really an option.

“I've always known that I wanted to get my education a bit higher than my father's so I wouldn't have to struggle like him," she said.

But soon into the application process, she learned that she didn’t just need good grades to go on to higher education, but also money — and lots of it.

"At first my father said to me that I shouldn’t worry about picking a school. It should be where I want to major in," said Gonzales.

"But when it actually came down to senior year, and I got all of my acceptance letters and financial aid awards, it really impacted my decision."

Gonzales had dreams of attending her first choice, Old Dominion University, or her backup, Virginia Commonwealth University. She got into both schools but wasn't offered as much financial aid as at her third choice, Radford. So she accepted.

However, even after deciding on the most affordable option, she's still finding that it’s going to be an all-out family affair to pay for the state school.

“My dad has two full-time jobs," Gonzales explained. "Every time he gets a paycheck, he plans to just divide it in the bills. I also plan on doing work-study at Radford. So I’ll be working while I’m at school.” 

Inside Story/Al Jazeera America

Keeping up with college tuition fees

“My dad has two full-time jobs. Every time he gets a paycheck, he plans to just divide it in the bills. I also plan on doing work-study at Radford. So I’ll be working while I’m at school.”

-- Karen Gonzales, high school graduate

Most American students share Gonzales’ story, averaging a student loan debt of more than $29,000. That’s nearly double what college seniors owed in 1989.

According to the College Board, this school year’s average costs for tuition and fees were $30,094 at private colleges, $8,893 for state residents at public colleges and $22,203 for out-of-state residents at public colleges.

And being in the red is not just an individual problem, but an evolving national one. Collectively, student debt is more than $1 trillion.

A recent report by the policy organization Demos says rising tuition fees are linked to state funding cuts in public colleges — a consequence of the Great Recession.

"It is absolutely cuts in state funding that have been the major cause of the rise in student debt," said one of the report's authors, Robert Hiltonsmith.

"Students are directly paying the cost, you know, for these holes in the state budgets, and they're doing so at the worst time in their lives."

Forty-nine states have seen an average cut in funding to about 27 percent per student.

Most public colleges are raising tuition fees and cutting campus resources to cover operational overhead. So, while students pay more, it does not necessarily translate into a better quality of teaching.

The results are millions of 20-somethings entering the economy cash-strapped, unable to spend money on much other than their student loans.

Hiltonsmith calls it a new “debt for diploma” system.

These students who are paying $300 or $500 a month toward reducing their student debt — that's $300, $500 they could be spending on a down payment on a house or a new car or other things that would then go and recirculate back into the economy.

Robert Hiltonsmith

policy analyst, Demos

The rules make it very difficult to forgive student debt through bankruptcy, so when people default, it sets off a vicious cycle of penalties or liens, making a bad situation worse.

Radmilla Suleymanova saw going into default first hand.

After earning a bachelor’s in journalism and a master’s in international relations, she graduated from college $80,000 in the red. 

"I just ignored it, and it was a big mistake to ignore it," Suleymanova told America Tonight.

When she did eventually decide to face reality, she was smacked with an ugly truth.

"When I signed in to my account, it was $92,000," she said.

The wake-up call sent Suleymanova’s life into upheaval. She moved back in with her parents, got a bar job and started paying back her debts.

Today, she’s carrying less than $20,000 debt, but at the expense of not spending money on anything else.

"I have no retirement fund, no savings,” Suleymanova said with a sigh. 

Real Money/Al Jazeera America

Strapped with debt

“I just ignored it, and it was a big mistake ... When I signed in to my account, it was $92,000.”

— Radmilla Suleymanova, student loan defaulter

Stories like Suleymanova’s weigh heavily on high school seniors like Karen Gonzales.

“I really am scared for my father," admitted Gonzales. "I hardly see him now, and the fact that I’m going to be going away, I’m not going to see him as much. I just feel like he’s not telling me, ‘Oh, I can’t do it.’ 

“I fear maybe by my third, fourth year [of college], he will just give up paying, because it’s so much money. So I guess right now we’re just trying to save as much as we can.”

Demos estimates that young households strapped with student loans will see a wealth loss of more than $200,000 in their lifetimes compared with those without any education debt, hindered because they are unable to invest early in their adulthoods.

What are the long-term effects of these debts?

How can students cushion the debt blow?

What are universities doing in response?

We consulted a panel of experts for the Inside Story.

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