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College Graduates, Lifelong Debtors?

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Student loans are nothing new. But these days, in the shadows of the financial and housing meltdowns, they've been brought into the spotlight as thousands of college graduates face the music of payback time -- in a big way.

Take Cortney Munna, featured in a New York Times article from Tuesday. After spending four years at New York University, Munna has graduated, the proud owner of $100,000 worth of loans from SLM Corp. (NYSE: SLM  ) , also known as Sallie Mae, and Citigroup's (NYSE: C  ) Citibank lending unit. Those loans can't be deferred in perpetuity. Like many others in her position, she is in dire need of some help.

Times reporter Ron Lieber writes:

The financial aid office often has the best picture of what students like Ms. Munna are up against, because they see their families' financial situation splayed out on the federal financial aid form. So why didn't N.Y.U. tell Ms. Munna that she simply did not belong there once she'd passed, say, $60,000 in total debt?

But wait. Should the university be responsible for ensuring college students and their families don't bite off more than they can chew? Where does personal responsibility play a role? Do students have a duty to themselves and their families to weigh their options and figure out what's best in the long term, or should the financial aid office make that its focus?

In addition, lenders are facing new challenges. Because of changes in the way the federal government funds student loans, Citigroup recently moved its student loan group into its holding company of noncore businesses. Sallie Mae stands poised to take over those student loan portfolios, arguably making the company the "too big to fail" player in the industry.

Meanwhile, Lieber reports that at this time, Munna can barely afford her living expenses and the loan minimums, and that she wants a clean slate:

Ms. Munna understands this tough love, buck up, buckle-down advice. But she also badly wants to call a do-over on the last decade. "I don't want to spend the rest of my life slaving away to pay for an education I got for four years and would happily give back," she said. "It feels wrong to me."

So where should college grads like Munna go from here? And who's to blame for their massive debts? Weigh in with your thoughts in the comments box below.

Hope Nelson-Pope is online coordinating editor at The Motley Fool. She owns none of the companies mentioned in this article. The Fool's disclosure policy thirsts for knowledge.

Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 04, 2010, at 4:23 PM, militauro wrote:

    College expense are sky high for sure and I can see why some people feel like the degree they've earned isn't exactly going to pay for this for a while. I think these types of students need additional tax breaks against interest paid and maybe even an income tax break depending on the size of the loan (and if the student finished school).

    Sad but BP is more likely to get more tax breaks than any students though.

  • Report this Comment On June 04, 2010, at 4:55 PM, DDHv wrote:

    College took five years, but working paid for most of it. The inexpensive college where I started is not the more expensive one graduated from. However, the weekends were primarily used for catching up on sleep! Today, it would make sense to get as much as possible through on-line courses.

  • Report this Comment On June 05, 2010, at 1:18 PM, PeyDaFool wrote:

    I read the New York Times article you're referring to and I'd have to say I side mostly with the banks on this one. The individual in the article piled up massive debt without ever thinking about the consequences of her actions. Sure, the bank and her school could have given her more information regarding her decision, but, ultimately, it was her responsibility to take these things into consideration.

    Before I attended college, I decided to enroll at a rather inexpensive state school and pick up an extra 12 hours per week in order to pay it off as I went along. By the time I graduated, I had a few more months of payments and I was debt free. Now, I plug 30% of my paycheck into stocks, Roth IRAs and a 401(k) because I understand the dire outlook for my retirement.

    We could blame the banks for massive debt that individuals rack up in the same respect we could blame McDonald's for the increasing number of obese people in the United States. In my humble opinion, I don't think it's fair to penalize a business for pursuing their approach to increase sales, rather we should, ourselves, look at what is best for us and be cognizant of the result of our own actions.

    My $0.02.

  • Report this Comment On June 19, 2010, at 12:13 AM, GarciaInvest2007 wrote:

    Most reading this article probably did not pile on big student loans, since we are studying stocks, myself included. But there might be the few who now realize what they have done and are starting catch up.

    I thought about going to speak at high schools about just this topic. When the counselors come in from colleges and financial aid comes in to high schools, why not have speakers from town to talk about the effects of big loans now. This is where I would come in.

    However, then who am I, and the rest of people that post here, to tell someone that they can not go to X college because their parents never saved, too poor, 1st generation immigrants or whatever else. When that immigrant, or that 1st generation or that really dedicated student with poor parents that might create the next big thing or find a cure for cancer. Or to make statements, like "I did this... and I did this right", this is just wrong. No new grad needs these condescending comments, they are uncalled for. Who cares if you did this, there is a problem at hand, and education is the kew here. Who cares what you and I did? Lets save some people from ruining their lives without saying what we did. Instead give your reasoning and convince them of your thought process.

    Then I also think that at the end of the day, you have to be realistic. For example, study something that will get you a job, while following your passion on the side, if that college is so great for your passion. For instance, I am actually ok with an engineer taking out 50k out for the college. 50k+ will be too much for anyone.

    Scholars say one should only spend 1/4 of your estimated salary after graduation on your education. However, if you take on more than that for a school that really adds value, then go for it, up to 100% of your income. However, realize what one is doing, and that X % of your paycheck will go to pay for the loans when you get a job.

    Another thing to be mad about, is how NICE colleges are now days. While I love them being competitive, I wish they would compete over tuition price. For example, why not if Boston University lowers its price, then Boston College does the same, then Northeastern fallows, and they get more applicants, and increase their revenue. Instead they compete over facilities and expand to keep up with Joneses College next door.


    Northeastern University build the biggest gym in Boston.

    Boston University 3 years later when realize they were losing applicant levels and losing students that would pay full tuition because of this BIG gym, Boston University then tops it, and builds an even bigger one, and UPPING tuition. Why not save the gym, upgrade the old one, and CUT tuition cost??? Wow, what a concept.

    I went to Northeastern, and paid my way and did different things and was lucky with scholarships.

    Bottom line, if someone is going to college now, it is the responsibility of the parents and the student to look up the amount of debt.

    The last year loans made since was 2003, when most colleges in Boston were in the mid $20,000. Because 4*25k= 100k this was the last year, after this if you took out more than this now you are talking a bad investment.

    My reasoning is:

    100k loan would be around $550 a month. This would be the highest an engineering major should really pay, this would like buying a house right before the top hits. Bad deal yes, but it pays off eventually if you studied something useful. If you just get a $99 a month car payment for a few years you can do a good dent in that loan. Now it is not worth going to Boston schools, they are in mid 40ks. This would be 160k, now this is a a bad investment.

    60k to study history, now that is BAD.

    Lets teach people to realize that financial decisions they make at 17 years old could impact their rest of their lives. And that nice dorm or where you feel right, might be the WORST investment and most regretful thing one will ever do. This is if too much money is taking out in loans of course.



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