College loan debt plagues Valley students

By ASHLEY LUTHERN

YOUNGSTOWN — After signing on the dotted line, Lauren Linville realized that she had agreed to an interest rate on her student loan that was more than double what she thought she would have to pay.

“There were low rates advertised at about 5 percent, but when I didn’t have a co-signer on the loan, the rates shot up to 12 percent,” said the 20-year-old Youngstown State University junior from East Liverpool.

Linville attended Kent State University her freshman year and was, in her words, “getting gypped” on her student loans.

“Kent only promotes two banks, but YSU works with 18 banks that are all competing for business, and I was able to switch to a better loan with a lower interest rate,” she said, adding that was one reason why she transferred to YSU.

Now as college students prepare to go back to school, some may decide to finance their education using federal and private loans, like Linville has.

Although she is working while in school to pay off her loans, if Linville still owes money after graduation she will become part of the 65 percent of students in Ohio who leave four-year public and private institutions with debt that averages $20,525, according to the Project on Student Debt. The nonprofit research organization is funded by the Pew Charitable Trusts, the Rosalinde and Arthur Gilbert Foundation, the William and Flora Hewlett Foundation and the Bay Tree Fund.

Loan volumes have multiplied dramatically at YSU, and it’s becoming commonplace to default on student loans, said James Stanger, director of technology who oversees loan reports at YSU.

“We’re running into this more and more every day. I look up a student’s aid and think, ‘Oh my God,’ because they get in a mind-set that once they’re in debt $30,000, what’s $5,000 more,” he said. “It’s that rationale that leads to mounting debt and a scary situation.”

The debt piles up quickly if students haven’t done their research before signing the loan.

“With these loans, you have to look at the small print very carefully, concentrating on the interest rate and the fees,” Stanger said.

Companies may advertise that they have a low interest rate, but because most of the rates are based on credit, the interest rate can actually be two or three times the advertised level if someone has poor credit, Stanger said.

“Students also need to know if the interest rate is fixed or variable. If it’s a variable rate, then the interest rates will increase at certain time intervals, depending on what’s in the contract,” he said.

Another tactic is to compare loan offers.

“Private lenders mail applications to the home, have ads during basketball games and other promotional things like that, and students just get sucked in. But they shouldn’t just go with the first ad that they see,” he said.

Having learned from her first loan, Linville compared rates on her other loans to get a better deal and is working to get rid of her debt.

“I know people who just accumulate debt, but I’m concentrating on paying mine off now,” she said. “I have two part-time jobs, one of which I use for rent and the other I use just for making payments on my student loans.”

Linville works full time in the summer in the Army Reserve and said the majority of her pay will go to student loans.

“I’m working really hard, but this is something that I always worry about,” she said.

For those who wait until after graduation to begin making payments, there is a general “grace period” of about six months. Service companies prepare the student for what will happen in a couple of months when payments are due, said Greg Stringer, senior vice president of Great Lakes Education Loan Services.

“Private loans are not sponsored by the federal government; they are like other consumer loans,” he said. “We work as a processing agent for the banks who give these loans. We also collect payments and pursue borrowers who are delinquent.”

Eventually, if someone continues not to make payments on a loan, service companies, including Great Lakes, will sell the loan to an insurer. Those insurers become the contact agency for borrowers and frequently hire outside debt-collection agencies, Stringer said.

After leaving school, a borrower should continue to negotiate with the lender.

“If someone knows that they can’t make the full payment, they should call and make a new arrangement,” Stanger said. “The lenders want the money to keep coming, and they’ll even go after your earnings and garnish your wages to get it.”

It’s better to lower the payments than stop paying at all because student loans cannot be discharged through bankruptcy, unless a borrower qualifies for a hardship exemption, said Atty. Todd Horlick, who specializes in bankruptcy law.

“When you have a student loan, it’s like you owe God money,” he said. “Only in extreme cases, for example someone becoming a paraplegic and no longer able to work, can hardship be determined and bankruptcy effective.”

Horlick added that many people are still convinced that if they file bankruptcy that their student loans will be discharged, which isn’t true.

“We make people sign written statements that clarify that we, as attorneys, have told them that they still owe their student loans even after declaring bankruptcy,” Horlick said.

Going to college is the first major financial decision an individual makes and, if funded by federal or private loans, it is something that will affect them long after graduation, Stanger said.

“Students are so focused on getting to college, that we’ll keep borrowing money to achieve it, but we really, really need to read the fine print on these loans so that we aren’t paying them off forever,” Linville said.