New graduates burdened with debt, but brimming with optimism

Media Credit: Samuel Klein | Photo Editor
Already owing $20,700 in debt, Spencer Dixon decided to graduate a year early to avoid taking on more loans.

John Bennett could have been graduating debt-free this week from a state university. Instead, he’ll need to pay off $107,000 in student loans after four years at GW.

And when Spencer Dixon dons a cap and gown Sunday – a year earlier than his peers to avoid more debt – he will have racked up $20,700 in loans.

Both seniors are taking on the kind of debt load that economists and lawmakers say is dragging down the economy and putting graduates’ futures on shaky paths. But Bennett and Dixon are part of a large contingent at GW who expect the borrowing to pay off, leveraging their time at the University to gain an edge in the job market and land successful careers.

“I’m doing this because it’s like high risk, high reward – there’s a high payoff later on,” said Bennett, who eventually wants to be an adviser on sustainable economic development. “I don’t expect this will be something that will hamstring me for the rest of my life.”

As Bennett heads to London to earn a master’s degree this fall – where he will pile on additional debt – he said he is confident that the connections made and time spent at GW will pay off.

He has a reason to be optimistic: Just 1.5 percent of GW students defaulted on their student loans within three years of making their first payment, well below the 13.4 percent average nationally, according to the Department of Education.

But his choice sits before a backdrop of high borrowing at GW and universities nationwide. GW students borrowed more than $38 million last academic year, and the Class of 2012 borrowed an average of $33,399 to earn their diploma – nearly $9,000 more than the national mean in 2011.

Student debt around the country ballooned to more than $1.1 trillion this year, prompting economists and policymakers to sound alarms about how that borrowing hurts the broader economy.

Democratic and Republican politicians in both houses of Congress have put forward measures acting on what many are calling a full-blown crisis. Several members have sought to prevent rates on federal loans from doubling to 6.8 percent on July 1, while recently elected Sen. Elizabeth Warren, D-Mass., proposed lowering that rate to the 0.75 percent rate the Federal Reserve offers to large banks.

Before choosing GW, Bennett said he recalled sitting down with his parents and talking ad nauseum about what it would mean if he borrowed money to attend school.

“Do I let financial shortfalls basically impose an arbitrary cap on what I want to do with the rest of my life, or do I kind of gamble and take on this burden of debt?” he said he remembered thinking four years ago.

He said he recognized the risks – he had seen his mother pay off her law school loans into her 40s – but knowing that most of his friends were also going that route calmed his nerves.

Graduates at Boston University and New York University borrowed on average $36,150 and $35,104 respectively, while those at Georgetown University and Northwestern University amassed just over $25,000 and $15,000 in loans, respectively.

The Class of 2013, which enrolled amid the highest unemployment rates in nearly 30 years, will enter an economy on the rebound.

But graduates are also pushing off into an economy that is now seeing the broader implications of a $1.1 trillion student debt load, which is pushing down on economic consumption.

The long-term impact of student loans looms large for Class of 2012 graduate Isaiah Toney, who took on $107,000 in student loans after earning his diploma.

“How am I going to be taking care of a family and sending my own kids to college when I’m paying off student loans that are so expensive?” Toney said. “Something’s got to give.”

Toney said he never anticipated such a heavy debt load. But when his financial aid package shrank by nearly $20,000 his sophomore year, Toney’s projected debt grew from what he had originally calculated to be less than $40,000.

He is responsible for nearly $1,700 in monthly payments for his federal and private debt – payments that he can’t sustain alone on his salary working for a nonprofit.

“I think, ideally, a lot of folks figure that they’ll graduate from college and then be able to help support their family, [not the other way around],” Toney said.

As an activist driven by the student debt crisis, Toney has organized and participated in protests demanding government action and accountability from Sallie Mae, the largest lender and servicer of student debt, but he applauded recent efforts by the Consumer Financial Protection Bureau.

A report from that agency last week outlined proposals, such as refinancing or restructuring private debt to make payments more affordable for struggling borrowers.

Richard Cordray, director of the bureau, cautioned at a hearing in Miami last week that student debt can cause a “domino effect on society,” because a trail of debt can significantly impact a borrower’s credit history and their ability to take out a mortgage on a home.

The report showed that young people under the age of 25 are starting fewer new households, with many choosing to live with their parents.

“While student loans are different than mortgages in that they don’t cause the same sort of systemic risk, high, unmanageable debt burdens might be impacting all of us, whether we have a student loan or not,” the agency’s student loan ombudsman Rohit Chopra said in an interview.

The thought of piling on more debt pushed the 21-year-old Dixon to graduate a year early.

When Dixon started classes in the fall of 2010, his parents, who both worked in real estate, were hard-pressed to fund their son’s GW education. Just a few years after the height of the housing crisis, both were still struggling to recover lost ground.

Dixon opted for GW – and $20,700 in loans – instead of nearby University of Maryland, though its price tag would have been nearly $37,000 cheaper. He said the costs were justified by opportunities like leading the College Democrats, GW’s largest student organization, during this year’s presidential election.

“I don’t think I would have had [these experiences] at UMD. And that’s really where the investment pays off. It’s cheesy, but I think ‘only at GW’ really does mean something and I think that has made my investment worthwhile, or at least that’s the hope,” Dixon said, as he knocked on wood.

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