More borrowers delay paying off their debt in sour job market

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Loans squeezing college grads
More borrowers delay paying off their debt in sour job market
Marisa Schultz / The Detroit News

Warren -- Ryan Jerome borrowed nearly $46,000 to earn an ITT Technical Institute degree that he thought would be the golden ticket to a great job. Seven months after graduation, however, the 22-year-old is still unemployed and living with his parents.

Rising student debt coupled with the highest unemployment rate in the nation has created a perfect financial storm for many Michigan college graduates.
To seek relief, a growing number of borrowers have delayed paying back their loans through deferment or forbearance. Deferments allow grads to suspend loan payments if they encounter economic hardship, re-enroll in school or serve in the military. Forbearance is a temporary postponement or reduction of payments because of financial hardship, but -- unlike deferments -- interest accrues.

"There are no jobs and money is tight," said Jerome, just before he was granted deferment. "If I can get a break in paying one bill, that would help out a lot."

More borrowers seek relief
Nearly $119 billion in direct federal student loans will go uncollected this year due to payment reprieves, up 22 percent from last year. But the total amount of loans in deferment or forbearance is actually much higher, experts say, because direct federal student loans make up just a quarter of all federal loans.

The U.S. Department of Education doesn't track deferments on indirect loans -- distributed mostly through banks or other lenders -- but officials estimate the proportion of borrowers granted payment relief would be similar.
The increase may not necessarily be bad, experts say, because it shows borrowers are seeking relief instead of going into default.
Uncollected money doesn't negatively impact the Department of Education's bottom line, said Dan Madzelan, assistant secretary for post-secondary education the department.
"These are not cancellations or forgivenesses," Madzelan said. "The department will collect on these loans."

For borrowers who graduate with big career dreams and even larger debts, the worries of repaying loans can be consuming.
"People who would be paying off loans don't have a job, and some of them whose parents would be helping out don't have jobs, either," said Carmen Berkley, 23, president of the United States Student Association in Washington, D.C.
Berkley graduated in 2007 with $80,000 in debt, but her loans are now in forbearance since she's unable to pay them on her salary from a nonprofit. "I'm worried about eating and making sure my rent is paid. Student loans are tertiary."

Tuition costs outpace aid
The average cost of tuition at four-year public universities in Michigan increased by 34 percent between 2000 and 2007, while personal income among Michiganians dropped 1 percent during that time, according to the Campaign for America's Future.
Meanwhile, federal financial aid didn't keep pace. The result: Students can't afford to go to college, so they drop out or are burdened by loan debt after graduation, said Robert Borosage, co-director of the Washington-based Campaign for America's Future.

About 60 percent of graduates from Michigan public and private colleges now carry debt. On average, the loan burden is $22,053 in Michigan, putting the state No. 12 in the nation, according to the Project on Student Debt.
Rachel Bethke, a 2008 graduate from Michigan State, was so worried about her $25,000 in debt that she considered putting off graduate school in favor of moving back home, finding work and paying down her loan.
But thanks to an assistantship that pays for her master's degree and research, Bethke, 23, is now a graduate student in crop and soil science at MSU.

A couple of five-minute phone calls were all it took to get her federal loans deferred.
"I think of my debts every day," said Bethke, of Grand Haven. "I used to get really stressed about it and worry so much about my family and future being negatively affected by my debts.
"But while going to graduate school I have really realized that these debts are going to benefit me in the positive in the future. I will be graduating with a higher degree in agriculture, which is still a growing institution in the U.S. and even in Michigan."

Studies have shown that high debt can affect where graduates live, the kind of careers they pursue, whether they buy a house and even when they start a family.
"Given the high debt levels, young people are getting squeezed out of the opportunity to make those choices," said Christine Lindstrom, director of U.S. PIRG Higher Education Program, which has studied the debt issue.
'You cannot escape'
Jerome believes he earned a good education at ITT, getting an associate's degree in computer drafting and design, but his degree has "a big title for a piece of paper that means nothing right now," he said.
Jerome scraped together enough money for his first two loan payments, about $200 each. But his $338 bi-weekly unemployment checks weren't able to sustain him for much longer, so he requested deferment.

Experts say it's vital for borrowers to contact their lender at the first sign of trouble.
"You cannot escape your student loans," said Chuck Holzman, a lawyer contracted with U.S. Justice Department to sue borrowers for defaulted loans.
In the Eastern District of Michigan, the federal government has sued more than 4,400 borrowers for unpaid loans since 2000, according to records in U.S. District Court in Detroit. Caseloads fluctuate each year and an upward trend is not apparent.

Even if a person declares bankruptcy, student loan debt is only wiped out if a borrower can prove paying the loan will impose an "undue hardship," and that's very rare. Exceptions tend to be made for borrowers who were duped by a fly-by-night trade school, said Holzman, managing partner of Holzman, Ritter & Leduc PLLC in Southfield.

Once efforts by the U.S. Department of Education have failed to collect on defaulted loans, the government turns the cases over to firms like Holzman's to take the borrowers to court. The firm recouped more than $1.1 million from defaulted Michigan borrowers in 2008 through court-approved payment plans, wage garnishments and seizure of assets, according to the firm.

Cases range from college drop-outs who are now working minimum-wage jobs to successful doctors who have been ignoring their $100,000 medical school loans.
"We have a significant number of cases against professionals and successful business people who have lots of income and assets and who think they can beat the system," Holzman said. "... You may be able to delay (collection) and put them off a bit, but it doesn't go away. They will catch you."