Recent college graduates fight load of debt

Nov 17, 2008 (The Pittsburgh Tribune-Review - McClatchy-Tribune Information Services via COMTEX) -- NNI | Quote | Chart | News | PowerRating -- Kari Schoeneweis, 22, will face more than $60,000 in student loan debt when she graduates from Carlow University in the spring.

She plans to take the same route as her older siblings and consolidate her loans to reduce the monthly payments.

"I'm terrified of the loans I'm going to have to pay off," she said. "I don't know how I'm going to do it; I guess I'll get through it somehow."

Schoeneweis is among many students who were unaware that consolidation options are more limited now than they were for students who graduated a few years ago. The U.S. Department of Education is nearly the only loan consolidator in the nation as many lenders have suspended consolidations because of the credit crunch.

"It is surprising, but, then again, it's not, considering all the stuff that's happening with the economy," Schoeneweis said.

The Pennsylvania Higher Education Assistance Agency, PHEAA, suspended its consolidation program in February. Sallie Mae, Nelnet and Next Student -- all among the top 10 consolidators in 2007 -- followed suit. Of the top 100 consolidators, 68 have suspended consolidations, said Mark Kantrowitz of Cranberry, publisher of FinAid, an online resource about financial aid.

"(Consolidation suspensions) accelerated after Oct.1, 2007, when the federal government cut lender subsidies on all federal loans," Kantrowitz said. "At current interest rates, they are underwater from the start."

As a result, the Department of Education's consolidation applications are up 50 percent from last year, a spokeswoman said.

Consolidation was a popular option for many years, because federal loans carried variable rates, which hit 40-year lows in 2002. Some students used consolidation to lock in interest rates as low as 2.8 percent.

In July 2006, federal loans began to carry a fixed 6.8 percent interest rate, so there are now fewer benefits to consolidating, and it's more expensive for lenders, said Martha Holler, a spokeswoman for student loan lender Sallie Mae.

"It's just not economical to make these loans," she said. "The current credit crisis; the turbulence in the capital markets would have to settle down (in order for Sallie Mae to resume consolidation loans.)"

Eric Donato, 21, a senior at the University of Pittsburgh, will face $80,000 in debt when he graduates. He has considered consolidating his loans, like his older sister did when she graduated college, but was unaware that other options exist.

He was surprised to learn that he'll likely have to go through the Department of Education to consolidate.

"I don't know too much about it, but it seems like it would make it easier," he said.

Even so, he's already preparing to live a lean lifestyle after graduation.

"I'm just going to have to cut expenses and find a cheap place to live," he said. "I'm pretty worried."

Drowning in debt

Some former students struggling in today's tough job market are having trouble dealing with their debt.

Dave Bolar, 24, of Ingram learned how difficult it can be to pay back student loans when he choose to no longer pursue a degree in information technology and left school earlier this year.

"I'm facing $25,000 in loans with nothing to show for it," he said.

Bolar said he hasn't paid on his student loans in some time despite receiving numerous notices from his lender. He's concerned he's in default, but just can't afford the payments, he said.

Bolar is among the 204,507 former students nationwide who have fallen behind on their student loan payments. Default rates in 2006, the most recent data available, jumped to 5.2 percent from 4.6 percent in 2005, according to the U.S. Department of Education.

During that same period, student loan debt increased by 12 percent for Pennsylvania students, according to the Project on Student Debt, a nonprofit that tracks college expenses. More than two-thirds of Pennsylvania college students graduated with at least some loan debt last year. The average was $23,613 -- the sixth-highest in the nation.

Keith New, a spokesman for the Pennsylvania Higher Education Assistance Agency, encourages those struggling with student debt to work with their lender.

"The worst thing they can do is ignore it," he said. "The (loan) servicer is really the borrower's best friend to help them make payments."

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