Cover Story
DROWNING IN DEBT M
ountain View resident Patricia Zeider chose to attend Cal State University Monterey Bay for its location — just far enough from home that her mother couldn’t check in on her, just close enough that she could come home on weekends. She took out loans to pay for a nicer off-campus apartment as well as a semester studying abroad in South Korea. She was interested in cultural anthropology and planned to teach English to adults. She graduated in May of last year with about $28,000 in debt. She’s now sleeping on a futon in her mother’s mobile home and working 12-hour days at Starbucks and the Mountain View Public Library to make her loan payments. Cinthya Vieyra, a first-generation college student from Redwood City, never imagined going anywhere for higher education except a local community college. But she got into Notre Dame de Namur in Belmont and worked two jobs and took out federal loans to cover the $45,000-per-year cost of tuition, room and board. Focused solely on getting an education, she didn’t worry about how much it would cost her later on, she said. Rand DeCastro, a 36-year-old web designer from Guam who works at a startup in Palo Alto, is working to pay off the $148,000 he accumulated during a two-year art program at The Art Institute of Seattle. He now pays about $700 per month in loans, which does not include his currently deferred federal loans. He and his partner have gone back to school multiple times, partially to defer on their loans and to take a break from the never-ending debt. This is the state of the nation’s loan system today. With student debt exceeding national credit-card debt — crossing the $1 trillion point last year — and college becoming costlier each year, students and their families are borrowing more and more to finance their futures. People at every stage of their education — just starting college or in the midst of their undergraduate or graduate tenures — along with recent graduates, parents and retired adults are saddled with debt. They’re neckdeep in what many call a broken system, which has devolved from a
well-intentioned federal commitment into a $1 trillion problem.
The evolution of student loans
T
he birth of student loans can be traced back to 1840, when the first program was established at Harvard University. But student loans started taking off nationwide during the second half of the 20th century. The 1958 National Defense Education Act — sparked in part by the Soviet launch of the first-ever satellite, Sputnik, and an ensuing concern that America was falling behind as a technology, math and science superpower — provided funding for educational programs, graduate fellowships, vocational-technical training and loans for college students interested in careers in science, math and foreign languages. The Higher Education Act of 1965 marked a milestone in student-loan history, providing Pell Grants for lower-income students. It also increased the amount of federal money given to universities so they could boost their financial-aid offerings, created scholarships and allowed for loans with lower interest rates. The act’s Guaranteed Student Loan Program — which would later become the Stafford Loan Program — granted loans whose repayment students could defer while enrolled in school full time. These came in both subsidized and unsubsidized form: subsidized meaning the government paid the interest while the borrower was in school, and unsubsidized meaning the borrower was responsible for all interest accrued. Later came the Free Application for Financial Student Aid (FAFSA) — which all students must complete before applying for federal and state loans — and loan-based repayment plans. Banks and nonprofit lenders entered the studentloan business in 1965, when the government began guaranteeing student loans under the Federal Family Education Loan Program. This opened the door for financial institutions such as Sallie Mae and Wells Fargo. State financial-aid programs, such as Cal Grants — money funded by the state of California that does not have to be paid back — also became part of the mix, as well as private scholarships.
With set limits, well-tailored requirements and repayment options in place, federal and state loan programs began as well-intentioned programs designed to make sure people from all walks of life could pursue higher education. Kathy Rose, a retired schoolteacher who lives in Menlo Park, said that when she attended San Jose State University in the 1970s, paying for college was that simple. “It used to be government loans, and they weren’t in it to make a profit,” she said. “They were there to help you get through college.” Rose borrowed $900 to finance her undergraduate education, half of which was paid off by the government because after graduating, she became a teacher in a low-income school district. With monthly payments of about $40, she said, she paid off her debt in about a year. “It was a piece of cake. We never even thought about it.” Today the picture is quite different.
A bad time for a student loan
A
s a full-time student in an intense art program, Rand DeCastro worked at most part-time while getting an education. His partner, Scott Schafer, who was working as an adviser at the University of Washington at the time, supported both of them, but DeCastro still had to take out loans to cover tuition as well as some living expenses. “For a while we were relying on only his salary when I was full time in school,” DeCastro said. “So we know what it’s like to be poor, to be on food stamps, to be going to food banks to get food and getting stipends to go to the grocery store. It’s really humbling and kind of embarrassing to be able-bodied people who are working and still can’t make ends meet, to have to go to a food bank and get frozen peas and trying to figure out what we can do just to eat for the week. It’s tough. It’s really tough.” Schafer, now an assistant director of fellowships at Stanford University, has his own set of student loans. He graduated with a degree in sociology from the University of California at Los Angeles in 1996, owing about $30,000 in federal loans. He went on to graduate school to study psychology, taking out more (continued on next page)
Student loans weigh heavy on the shoulders of local students, graduates BY ELENA KADVANY