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The cost of opportunity

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ILLUSTRATION BY BRANDON RAYGO

 This fall, the Cap Times is examining and explaining the student loan debt issue in a series of stories and a six-part podcast. We are looking at what lawmakers in Wisconsin and in Washington, D.C., are saying about it, how and why debt and tuition have increased so rapidly and how student debt has become the single largest asset on the federal government’s balance sheet, making the U.S. Department of Education equivalent to the fifth largest bank in the country.

We will also explain how loan servicers work, explore suicide rates and debt, the refinancing landscape, and what the debt means and does not mean for the national economy.

Jamie McClendon, a criminal defense attorney, is paying on $189,000 in college debt.

Michael Dennison, a state agency employee, is paying down $24,000.

Araceli Esparza, a freelance writer, is paying on more than $70,000 in student loans.

They are just a handful of the millions who borrowed money to get college degrees, hoping to enter professions and adulthood with a strong foundation. Instead, many borrowers say taking on debt has meant a trade-off — what they hoped would be a tool to gain financial prosperity has held them back from it.

More people are borrowing more money to pay for college each year. Total student loan debt reached $1.44 trillion this year, held by 44.2 million borrowers nationwide, according to federal government figures. In Wisconsin, there are about 1 million people who together hold more than $19 billion in student loan debt, according to figures from the U.S. Department of Education, the country’s largest student lender.

Decades ago, students could pay for college tuition and living expenses by working throughout school and during summers. Now, college is so expensive — up 237 percent for in-state tuition at public universities since 1997 — that many students are only able to go if they take out loans.

Even with the best attempts at financial planning, changing regulations and compounding interest have made college debt a heavy burden for many borrowers.

As student debt has surpassed credit card debt and auto loans in the United States, some call it a “crisis” that has serious, widespread implications for the economy by financially ravaging a generation of Americans. Others say the macroeconomic implications are overblown and argue high levels of debt reflect the real cost of higher education, which is a prudent investment that will pay off.

The Cap Times conducted an online survey over two weeks in August, asking Wisconsin borrowers about their student loans. Of the 807 people who responded to the survey:

• 77.2 percent said student loans have affected their long term goals including going back to school, changing jobs, starting a family or buying a house.

• 35 percent said they had $25,000 to $50,000 in debt.

• 14.6 percent said they had $50,000 to $75,000 in debt.

• 19 percent said they had more than $75,000 in debt.

• 55 percent said that an elected official’s stance on student loan debt is “important” or “very important.”

• About 34 percent of respondents felt neutral about the helpfulness of their loan servicer.

• 41 percent felt “horrible” and “not great” about how helpful their servicer has been in helping them pay down their loan.

For this story, the Cap Times interviewed 25 Wisconsinites whose experiences provide a snapshot of what rising college costs and growing student loans mean for borrowers.

Many said the debt they accrued has dictated the paths they took after graduation. A majority said they are frustrated that they can’t easily refinance their loans. Some said they rarely talk about their debt and feel a sense of shame and isolation because of it. 

Several borrowers did not want their names used in a story about debt or, after interviews, decided to withdraw. One borrower, who works as a high school administrator, said he has never spoken to his family about the loans he took out to attend graduate school.

“I don’t speak in general about it,” he said. “For me, it’s probably pride and embarrassment. I’ve got a family who worked really hard. I think there’s a stigma to it.”

Many borrowers said while they don’t necessarily regret their degrees, they wish they knew how college costs would affect their personal lives after graduation.

“What I didn’t know, what you don’t realize when you’re going through this, is how it’s going to compound,” the high school administrator said. “I don’t think I knew how to plan my personal life around it.”

Many borrowers also said they wish there was in-person, one-on-one counseling to help deal with loans after graduation and said schools and colleges should address financial literacy more.

“My experience talking to people, it’s like ‘here are your options,’ then they leave it up to some government website … I didn’t feel like I knew how to handle that process,” the high school administrator said. “The brain can’t even process long-term thinking at a young age.”

Nearly all borrowers interviewed said they have delayed buying houses, starting families and saving for retirement while they try to pay off their loans. They all have different approaches and experiences with their debt. Here are some of their stories.

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In Wisconsin, there are about 1 million people who together hold more than $19 billion in student loan debt, according to figures from the U.S. Department of Education, the country’s largest student lender.

Jamie McClendon, 36, wanted to be an attorney since kindergarten. She grew up in Madison and after graduating debt-free from the University of Wisconsin-LaCrosse, went to law school at Arizona State University to become a public defender.

McClendon took out seven private and federal government loans, all at different interest rates, to pay for law school. She graduated in 2007. After a decade of paying back her loans, she said her balance now stands at $189,000, including a $21,000 loan she defaulted on.

She said she was told she would be able to consolidate her loans after graduating, but she hasn’t been able to do that due to complications with the defaulted loan and between her federal and private lenders. That has made it more difficult to keep up with payments.

Trying to manage those payments has re-oriented her life.

She worked as a public defender for the state of Wisconsin for five years and, during that time, enrolled in the Public Service Loan Forgiveness Program, a government program that erases student loan debt after a borrower works in a public sector job full time and makes 120 payments.

McClendon’s payments in the program were contingent on her income, but after she earned a small raise at work, she said her monthly payment amount jumped and she could no longer afford to pay it. She needed the extra money to pay for other bills so she dropped out of the program.

“I needed that money … so I ended up not doing it. I couldn’t afford the additional amount they were raising it by. It sounds good in theory, but right now we can’t afford it,” she said.

Eventually she realized she needed to make more money than the public defender’s office could pay, so she left earlier this year to start her own private criminal defense practice.

“I think that’s the hard part,” she said. “I went to school. I knew what I wanted to do. I wanted to work at the public defender’s office. Realistically, I couldn’t stay.”

As McClendon has tried to start her own legal practice, the default — a misstep she said was the result of a miscommunication with her private lender — and financial struggles to keep up with her other loans followed her. She was scared she would be sued over the default and have to appear before a judge in a county where she works.

“This shame of going before a judge that sees me every day … I’d have to admit to him that I screwed up on this, even though I feel like there’s mitigating circumstances,” she said.

The default also crippled her credit score. She had tell a landlord about it when trying to rent office space in Racine.

“I was upfront about it because I was so nervous,” she said. “What kind of attorney has a default out there? There is that shame for me.”

McClendon said she doesn’t regret going to law school because she loves what she does.

“There’s nothing else I want to do than this,” she said. “The student loan debt is not worth it if you’re not willing to make that sacrifice.”

She wishes she understood the full implications of that financial sacrifice earlier.

“I remember signing the student loans like every year. I remember not reading them and that’s on me. I read enough to understand the amount and stuff like that, but I was told when I went to law school that I could consolidate,” she said. “I don’t think I knew enough and I literally had no way of going to law school if I didn’t sign that piece of paper.”

Now she has her loans on automatic payments, but remains one accident or mishap away from financial devastation, she said. 

“I don’t ever expect to own a house,” she said. “It’s just this pressure. There’s this never-ending feeling that I’m never going to get out from underneath this.”

Araceli Esparza, 40, is still paying off her college loans even as her son begins his own college career this fall.

Esparza has more than $70,000 in federal loans from an undergraduate degree in sociology and Chicana studies from the University of Minnesota-Twin Cities and a master’s degree in children’s literature from Hamline University in Minnesota.

Her son will have to take out loans, too, but not as many as Esparza who, as the first person to go to college in her family, said she didn’t really understand how quickly the debt would stack up. She has struggled to make payments on her debt and does not have money to pay thousands of dollars in tuition each year for her son.

“So the cycle continues,” she said. “They told me that my student loan doesn’t affect his eligibility or loan debt, so that was kind of nice to hear. Individually, we can all be indebted. And my loan doesn’t get inherited (if I die) but those are the types of questions I’m asking now, things I didn’t ask 17 years ago when I was an undergrad.”

Because her family is considered low income by the government, Esparza’s son was able to get state and federal grants to help offset the cost of college. He should be able to graduate with under $10,000 in debt, Esparza said.

She now works as a freelancer, running her own business as a writer and a consultant, a move she said she made purposefully to keep her student loan payments low on her income-based repayment plan.

“This year I got smart about it. I’m doing what I have been doing, but on my own,” Esparza said.

“You learn to stay poor, you learn to do with little because you get punished if you make too much. You make more, you get taxed more. Having a business is my creative answer to it.”

Esparza said she is making payments but she says it is a struggle.

“We are barely making it. We don’t have any savings. If we were to get injured, we’re both screwed. We have no security and we’re just on the line,” she said. “I think sometimes you don’t think about student loan debt. If you do think about it then all hope is gone because you know for a fact that you’re never going to pay it all back in your lifetime. It is what it is.”

Esparza is married now, but she was a single mother for seven years with student loan debt. That debt prevented her from getting auto loans and a mortgage, she said. When she married, she was later able to buy a house with her husband.

Honest conversations about student debt and finances are not happening as much as they should be in communities of color, she said.

“If they do it’s, ‘Oh my gosh it’s so expensive.’ Everybody just thinks student loan debt equates to college and you might not get a job coming out of it if you’re a person of color who’s got a funky name that’s not Jane or John,” she said.

Michael Dennison, 30, got his first student loan payment notice on Christmas Day the year he graduated from college.

He earned an English degree from UW-La Crosse with a focus on writing, unsure of exactly what to do with it. He went because “that was the expectation: graduate from high school, go to college, and continue your education,” he said.

“After hearing that a good, liberal arts education is a fine way to go and will open up any job for me, I decided to do something that was interesting to me,” he said about his choice of major.

He worked 30 hours a week while a student to cover rent and food, but had to take out loans to cover tuition. He graduated in 2010 with $24,000 in debt.

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He works full time for the state and has held a second job working the front desk at hotels since 2012. Between both jobs, he said he frequently works 75 hours a week.

He and his wife, who had student debt, too, bought a house last April, and he is on track to pay off his debt by next year, he said.

“I still don’t know how we scraped together enough to buy a house. It was constantly, constantly saving and making decisions like ‘do I want to throw this at my student loan or a house?”

Dennison refinanced his loan several years ago, a move he said saved him significantly, but witnessing how interest grows a loan has been frustrating.

“Especially when you have a balance as high as $20,000 on those loans and you’re getting hit with almost 7 percent interest on those loans month after month, it’s tough to see progress made,” he said. “Here I am seven years later and I still have a full year to go when I’m paying six times the minimum payment on my loans. It’s frustrating.”

Dennison said he doesn’t regret going to college but might have picked a different career.

“I don’t know if it was worth the cost, but it was certainly a valuable experience.”

Set on becoming a school psychologist, Maggie Pennoyer, 30, researched taking on debt responsibly. Part of that research meant ensuring she would qualify for loan forgiveness from the federal government.

She graduated from UW-Madison debt-free and then moved on to Loyola University in Chicago for her master’s and specialist degrees. She graduated in 2013 with significant debt, all in federal loans. She declined to disclose the amount.

The Public Service Loan Forgiveness Program is why Pennoyer said she chose to go to Loyola and felt confident she could deal with the debt she accrued. She now works for a Madison-area public school, which fulfills a qualification for forgiveness.

“I felt like I was making a smart decision and not realizing that it could perhaps be taken away, but I know I’m not alone in that,” she said.

Since she has been in the program, her loan balance has increased as interest accrues. If the current program stands, whatever the amount her loan is by the end of 10 years or 120 monthly payments will be forgiven.

“I think I’m a very careful person when it comes to money, so it’s hard not to know and it’s kind of scary not to know what the right choice is — forgoing my loan forgiveness plan and paying significantly more each month for the sake of lower interest rates or making the potentially expensive gamble of continuing my current repayment track with the hopes of the remainder being forgiven,” she said.

Should the forgiveness program be eliminated as President Trump has proposed in his budget, Pennoyer said it will send a larger message.

“The idea of loan forgiveness was a message that the federal government really believes in the work of educators and other government employees and will do its part with the partnership to the community. It’s discouraging to see the federal government possibly turning their back on those partnerships.”

Pennoyer is engaged and said she and her partner are saving to buy a house. Being on track for loan forgiveness allows her to save more. She said she has researched other approaches to paying off her loans, including refinancing.

“I’ve put in a lot of time this summer looking into it and I had some help from a financial planner which was somewhat discouraging because he didn’t have the answers either,” she said. “The professionals even say, ‘We don’t know what to tell you.’”

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student loan debt illustration

Preston Branch, 30, is trying to figure out how to approach his student loan debt, but is struggling to make his monthly payments.

He has $60,000 in debt from both federal and private loans after graduating from UW-Madison with a degree in sociology in 2011. He said he was naive when he entered school, failing to understand the financial consequences of earning his degree and how interest on debt compounds.

“Going through middle school and high school there was a big push to go to school as a means of bettering yourself and as a means of prosperity, especially for people of different backgrounds and ethnicities,” he said.

“Being a black person and the first person to go to school and graduate from university, there is this idea of, ‘Well, one way to really succeed is to pursue your education.’ I’ve always wanted to go to school and really had the drive to learn more.”

Right now Branch is not making payments on his loans. He says he can’t afford to. He has been delaying payments on his government loans through forbearance and deferment. Creditors for his private loans keep calling.

“I cannot trade my living expenses to pay a debt that is not lowering in cost. At some future time I would be willing to pay my debts but I am not financially capable of doing that now,” he said. “Unfortunately unlike material debt, like cars and houses, you can’t just give your diploma back which puts people in a servitude to have to pay their debt back.”

Branch said he made payments on his loans for the first three years after graduating, but seeing the loans grow from interest instead of decrease was demoralizing.

“The interest is so high that I was paying down on one loan but the total amount owed kept rising. I paid the majority of the original cost of the loan but now still owe double. It seems like a manipulative system,” he said.

He lived in several big cities after graduating, including Denver and San Francisco, but is now back in Madison working as a barista and trying to figure out a career plan.

“The only way I could finance school was through student loans. I didn’t have any family members that were familiar with the process, counselors really talking about that in college or high school,” he said. 

Branch feels shame about his debt and his inability to pay it down but acknowledges he is responsible for taking it on.

“I usually tell people I have less debt than what I have,” he said.

He said there should ultimately be more discussions about how loans will affect you after school.

 “Universities do have power over students in such a way that it becomes institutions against individuals,” he said. “If you want to go to school and don’t have money to fund it, you have to go through the banking and loan system.

“There’s really no information given to students about the consequences of pursuing the American Dream.”

 

Katelyn Ferral is The Cap Times' public affairs and investigative reporter. She joined the paper in 2015 and previously covered the energy industry for the Pittsburgh Tribune Review. She's also covered state politics and government in North Carolina.