Mason City Globe Gazette, IA
02-10-07
College debt increasingly is a burden to graduates
By Mary Pieper, Of The Globe Gazette
MASON CITY — Many recent college graduates are trying to climb out from
under a mountain of student loan debt.
“This debt has been eating away these kids and it’s ruining their lives,” said
Randy Bodeen, an investment representative with Edward Jones in Mason City.
Thirty-four percent of those graduating from college with debt have sold
possessions to make ends meet, according to a recent survey conducted by
AllianceBernstein Investments, Inc.
Forty-two percent of those surveyed said they live paycheck to paycheck, and 27
percent reported they delayed getting medical or dental procedures done
because of their debt, which is driven by skyrocketing tuition costs.
According to the National Center for Educational Statistics, the average cost of
college increases at twice the rate of inflation.
The average tuition, room and board at a four-year college or university was
$16,465 per year in 2004-05, compared to $5,160 in 1984-85.
During a recent appearance in Mason City, Gov. Chet Culver said Iowa has “just
about the highest (college) debt load in the nation.” He noted that the average
debt for an Iowa State University graduate last year was $26,000.
And going to graduate school piles on the debt even for those who managed to
avoid it during their undergraduate work.
Anna Ostrander, a 1998 Clear Lake High School graduate who now is an
emergency room resident physician at University Hospitals in Iowa City, has
$91,000 in college debt — mostly from getting her medical degree from the
University of Iowa.
Her twin sister, Laura, who went to the University of Iowa Law School and now
works for the Iowa Court of Appeals, has $45,000 in debt.
But they say their debt pales in comparison to that of others they know.
Laura said some of her co-workers have $200,000 in college debt and are putting
off buying houses because of it.
“Student loan debt can affect you for the rest of your life,” Anna said.
Nowadays, a lot of people have lowered payments for the first year or two,
paying interest only. But then the payments start to get a little bit high, Laura
said.
Even if you file for bankruptcy, you still have to repay your student loans, she
noted.
Interest rates on student loans have gone up since Anna and Laura were in
college, “so I feel sorry for current students,” Laura said.
The U.S. House of Representatives has proposed cutting interest rates on some
student loans from 6.8 percent to 3.4 percent over a five-year period.
The interest rate cut would help 5.5 million students who get need-based federal
loans.
But there are other loans people use for college, including private loans.
A lot of loan companies sell their loans to other loan companies that raise
interest rates arbitrarily, Laura said.
“It’s illegal, but a lot of people wouldn’t question it,” she said.
Bodeen says he has had recent college graduates come to him because they
were worried about their debt.
Some have cashed in their retirement plans to pay debt down.
But when you cash in your retirement plan early, you pay a 10 percent IRS
penalty, Bodeen said.
In addition, all the money being withheld for the retirement plan suddenly
becomes taxable.
“It costs them 50 percent of the total,” Bodeen said.
Bodeen’s daughter, Sara Carlsson, who works as a financial adviser for Edward
Jones, said some programs are available to allow parents to receive tax breaks
while saving money for their children’s college education.
“That’s an important thing to be able to do,” she said.
One of these plans, called a Coverdell Education Savings Account, allows
families to put away $2,000 per year.
Contributions aren’t deductible. However, the designated beneficiary of a
Coverdell ESA can receive tax-free distributions to pay qualified education
expenses as long as the distributions do not exceed education expenses.
In addition to college, the money can be used for earlier educational expenses,
such as tuition to private schools like Newman Catholic, Carlsson said.
The money also can be transferred to another child in the family if the initially
designated student doesn’t use the funds.
The 529 Future Scholar Education Savings Plan allows families to contribute
higher amounts per year than the Coverdell ESA. However, those funds can only
be used for tuition, books and room and board at accredited colleges or
universities.
Bodeen said if teens have jobs during the summer, they can put that money in a
Roth IRA. If they don’t go to college, they can still save that money for retirement.
For those who do take out loans, it’s important not to take out more than you
need, according to Anna Ostrander. She said she knows people who used
student loan money for purposes other than education.
“I have classmates who had very nice spring breaks when they were in college,
but it’s a lot of interest for a long time for a short trip,” she said.
Reach Mary Pieper at 421-0578 or mary.pieper@globegazette.com.