Sept. 14, 2011 -- For many Americans, student loans are the only way to pay for a college education, but new figures are showing that repaying them is crippling borrowers across the country.
According to the Department of Education, the national two-year default rate rose to 8.8 percent last year from 7 percent in fiscal year 2008. The overall increase was mostly from students borrowing from the government to attend for-profit colleges.
The troubling figures are coming at a time when recent graduates are being hit from all sides. New Census Bureau information shows that 14.2 percent of 25- to 34-year-olds lived with their parents in 2011, a 25 percent increase from before the recession began.
Many are living at home because they can't find full-time positions, like Andrea Jansky, a 24-year-old graduate of New Jersey's Fairleigh Dickinson University. She earned her Master's degree in Education, but can't find a full-time job as a teacher. She financed most of her college education with student loans, and owes close to $100,000. She works two part-time jobs – as a substitute teacher and as a tutor at a learning center – and pays what she can.
"If I didn't have them financially, to live with them, then I wouldn't be able to pay that part," she said. "We have been out two years now and we don't have full-time jobs."
Like many of the people who took out loans to cover college costs, Jansky said she wasn't thinking about the payments she would have to make post-graduation.
"It doesn't seem real," she said.
Caitlin Lewis, a 23-year-old graduate from West Virginia University, has a full-time job, but still struggles to make the $560.89 monthly payment to her federal, Sallie Mae and American Education loans. She pays them on her own, and even though she graduated a semester early she says she is up to her ears in loan debt.
"Biggest fear: being laid off from my current job and having no way of making payment," she said. "Loan companies do not care if I was out of work…they want their money."
Lewis and her boyfriend now both live with his parents to save money because they are both inundated with loan debt and other expenses. She is also accumulating credit card debt because she is low on cash to pay for necessities.
"Never did I once think monthly payments would be this high," she said. "There really is not an alternative to go to college. Unless you're born with a silver spoon in your mouth, it seems hopeless."
It's not just young adults who are burdened with thousands of dollars in loan costs. Many parents intending to help their kids are making payments for them. Some, like Lisa Yeates of Hillsborough, N.J., took out loans in her own name, and co-signed some of her daughters, to help with the expense.
"I didn't think of student loans," she said when she was helping her daughter Kimberly choose a school. "I told her to go where she wanted. I wanted her to go somewhere she would be successful and not somewhere she would hate…we would deal with the student loans after the fact."
Her daughter now pays some of the loans, while Yeates pays the others. Together they pay close to $1,000 every month.
"I've been paying the first student loan for five years and I feel like I haven't made a dent in it," she said. Meanwhile, Yeates and her family have had to change their lifestyle to afford the payments each month.
"We don't travel like we used to, we don't do as many extra things that we used to," she said. "The extra money just isn't there anymore because now it's going toward school loans."
She's afraid she's going to have to extend working past retirement to make sure the loans get paid down.
"I'll never retire at this rate," she said. "I figure I'll just keep working. I've considered getting another job to help pay down just student loans, and I have a full-time job."
"This is a crisis situation," said Dave Jones, president of the Association of Independent Consumer Credit Counseling Agencies, an organization that lists non-profit credit counselors who specialize in debt management and financial education. "The average amount of money that a recent graduate has in student loans after a 4-year degree approaches $70,000. It's at an all-time high."
Jones says paying that back, even with low interest rates, may be a daunting task.
"They are not dischargeable in bankruptcy so they cannot be wiped out," he said. There are, however, a few things that people with federal loans can do to perhaps lower their payments.
"If a person has multiple student loans, consolidation can be a real godsend for them," said Jones. Some candidates can have a loan re-aged and given a new loan with a new payment schedule to get some relief. He says considering talking to a credit counselor to learn about the options is best because each individual case is different.
The AICCCA Web site lists other non-profit credit counseling agencies by state, and some even offer online or phone counseling sessions, making it easier to get free -- and trusted -- financial advice.
Borrowers with federal loans can also go to www.studentloans.gov to find other options to either defer or bring down their payments.
Click here to find a non-profit credit counselor near you
Private loans, like those serviced by some banks or Sallie Mae, are a little trickier to deal with. Interest rates for private loans depend on the student or co-signer's credit history and other factors, including today's interest rates.
"We work with our customers experiencing financial difficulty to find ways to help them remain successful," said Patricia Christel of Sallie Mae. "This can involve switching to a different payment plan and a review of their financial situation to see whether they could be eligible for a temporary period of lower or no payments."
Taking a break from payments via deferment or switching to a longer payment schedule could result in paying much more in the long run in interest.
"It doesn't make any sense when people don't care what the car costs, they only care what the payment is," said Jones about many of the options borrowers have to lower their monthly payments. "But so many people are desperate they will do whatever they can do."
"Bottom line is that we want to hear from our customers and work with them to find a way for them to be successful," said Christel. "Nobody wins — not the customer, not future students who depend on student loans for access to college, not the school and not the lender — if someone defaults."
Christel recommends that whenever possible students pay interest while they are still in school, sign up for automatic payments that can sometimes qualify borrowers for a reduction in interest rates or paying a little extra whenever you can. Still, for many, paying a little extra just isn't possible in today's economic environment.
"It's ridiculous and it's disheartening because the jobs are not there," said Yeates. "I think when they put these programs out there to promote education, they also need to look at what happening in the environment...give them a tool to get to the light at the end of the tunnel. And don't let that light be a train."