Some Americans caught in a weak labor market are lining up for federal student aid, not for an education that improves their employment prospects, but for the opportunity to take out loans at low cost, sometimes with little money. intention to graduate.
Take Ray Selent, a 30-year former salesperson in Fort Lauderdale, Florida. He was unemployed in 2012 when he enrolled as a part-time student at Broward County Community College. This allowed her to borrow thousands of dollars to pay her mother’s rent, cover her cell phone bill, and occasionally watch a movie.
“The only way I think I can survive financially is to go back to school and get more debt,” says Selent, who has since added $ 8,000 in student debt to living expenses. Going back to school also gave Selent a reprieve on the $ 400 a month he owed for past student debt because the federal government does not require payments while borrowers are in school.
Ray Selent of Fort Lauderdale, Fla., Who is taking classes for a theater degree, says student loans allow him to cover any needs that arise.
Andrew Kaufman for The Wall Street Journal
Several factors explain the growth in student debt. The resumption of soft jobs and the emphasis on education pushed people to continue their education. But borrowing thousands of low-rate student loans – which cover tuition, textbooks, and a loose category known as living expenses, a number determined by each school – can also be easier than getting one. Bank loan. The government does not perform credit checks on most student loans.
College officials and federal watchdogs can’t say exactly how much of the growing $ 1.1 trillion US student loan debt has gone to living expenses. But data and government reports indicate the phenomenon is real. The Inspector General of the Ministry of Education warned last month that the boom in online education has led more and more students to borrow excessively for personal expenses. Its report indicates that among the online programs of eight universities and colleges, non-education expenses such as rent, transportation and “miscellaneous” items accounted for more than half of the costs covered by student aid. .
The report also found that schools disbursed an average of $ 5,285 in loans each to more than 42,000 students who had no credit at the time. The report highlighted possible factors such as fraud in addition to cases of people enrolling without serious intention to graduate.
Capella Education Co., which operates online schools, looked at costs and student debt at public and private institutions in Minnesota and found that between one-quarter and three-quarters of loans taken by students were for non-education expenses. In one of Capella’s master’s programs, the typical graduate walked away with around $ 30,200 in student debt, even though tuition, fees, and books totaled around $ 18,800. Borrowers are prohibited under federal law, except in rare cases, from discharging student debt through bankruptcy.
The proportion of student borrowers who take out the maximum loan amount – $ 12,500 per year for undergraduates – has increased since the recession. In the 2011-12 school year, data from the Federal Ministry of Education shows that 68% of all undergraduate borrowers reached the annual loan limit, up from 60% in 2008.
Research suggests that a good chunk of this goes to non-education spending. In 2011-12, about a quarter of student borrowers took out loans in excess of their tuition, after scholarships, by $ 2,500, according to a study by Mark Kantrowitz, higher education analyst and editor of educational site Edvisors.com .
Some students say they plan to get a degree but need to borrow as much as possible because they can’t find good paying jobs to cover their daily expenses.
Tommie Matherne, 32, married with five children in Billings, MT, has been in school since 2010, when he realized that the $ 10 an hour he was making as a mall attendant did not cover his family’s expenses. He uses about $ 2,000 in student loans each year to stock his refrigerator and catch up on his bills. His wife is a stay-at-home mom who also gets loans for online classes.
“We take whatever we can for student loans each year, take whatever we have left and use it to stock the freezer just to have a few extra months where we don’t have to worry about food,” says Mr. Matherne, who owes $ 51,600 in federal loans.
Some students end up taking on more debt. Early last year, when Denna Merritt lost her long-term unemployment benefits, the 49-year-old Indianapolis woman enrolled part-time in the online program at the Art Institute of Pittsburgh in the goal of obtaining a degree in graphic design. She took out $ 15,000 in federal loans, including $ 2,800 to make up for unpaid bills, including utilities, health insurance premiums and cable.
“Obviously, it’s best not to use it that way if you can help it, because you’re just going to have to much later,” says Ms. Merritt, a former accountant.
The government allows students to use part of federal loans for living expenses on the grounds that it allows students to devote more time to their studies and improves their chances of graduating. Even when schools suspect that students are borrowing too much, federal law and Department of Education policy prevent them from withholding funds.
Professional groups at colleges and universities are pushing this year to pass legislation to lower maximum loan limits for certain types of students, such as part-time students. Dorie Nolt, spokesperson for Education Secretary Arne Duncan, said the Obama administration “is exploring alternatives to see how we can ensure that students don’t borrow more than they need to.”
Mr. Selent, of Fort Lauderdale, knows he is sinking into a hole but prefers that to the alternative of hitting minimum wage. In his 20s, he graduated with a bachelor’s degree in communication from a local for-profit school, but couldn’t find a job in the field after graduating and started falling behind on his loan bills. student. He is currently taking a bachelor’s degree in theater to become an actor.
Meanwhile, federal loans allow him to cover any needs that arise during the semester. Said Mr. Selent: “It keeps me from collapsing.
Write to Josh Mitchell at [email protected]
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