Central Texas mom Joan Neppl-Wilhite has navigated student loan applications, extended retirement plans and even bought a few lottery tickets to help her two children in college.
Most recently, the single mom put a plea on gofundme.com for a portion of her daughter Marissa Wilhite’s estimated $60,000 tab to attend Texas A&M University for an undergraduate degree.
“You have to be creative or your kids are going to get creamed,” said Neppl-Wilhite, 50. “You are walking away with a $60,000 bill in your pocket. I’m thinking, ‘My God, how do you even make it?’ It’s gotten out of hand.”
Neppl-Wilhite isn’t alone in her frustration.
Amid rising college education costs, the country is seeing a surge in student loan debt and in those borrowers’ delinquency rates. The combination, lawmakers and policy experts say, has led to a new kind of debt crisis, and one that could become a long-term threat to the U.S. economy.
The U.S. student loan debt market, which grew 7.1 percent to a record $1.2 trillion last year, is now the second-largest form of consumer debt behind housing, according to the Federal Reserve Bank of New York. It’s nearing the size of the $1.3 trillion subprime home mortgage market that helped spark the last recession.
“There’s a lot of dynamics that are very different here,” said Garrett Groves, economic opportunity program director at the Center for Public Policy Priorities, which has spotlighted the issue in Texas. But “when you’ve got a bowling ball of $1.2 trillion, how might that knock over some of these other economic foundations?”
The impacts have been wide-ranging: Record numbers of students are returning home as they delay a laundry list of economic and personal decisions from buying homes to getting married. Many say they are also reconsidering their career prospects.
Experts also say they are concerned that the crisis will widen demographic gaps on college campuses, as minority students and those from low-income families face tougher choices to access funding.
“My family doesn’t have a whole lot of money to donate towards college,” said Mohamed Bayo, an 18-year-old Pflugerville high school graduate attending his first year in college. “It’s a lot of money dealing with college.”
Loan struggles hit home
Texas has seen the default crisis firsthand as tuition rates surge, fueling debt levels and delinquency rates.
“Particularly worrying is the fact that rising tuition rates are driving an equally steep increase in college loan debt,” the Texas comptroller’s office said in a recent report. “Many Texas college graduates and former students are entering adult life hobbled by years and even decades of crippling debt.”
Bayo, a first-year student at Austin Community College, visited his financial aid office a dozen or more times over worries about borrowing money.
Bayo lives at home to save money and help his single mom.
“I definitely know the grants are going down,” he said. “And I don’t want to be stuck with too much.”
Bayo has reason to worry.
In 2012, 20.5 percent of the state’s student loan borrowers were more than 90 days delinquent, surpassing the national rate of 17 percent and marking the 10th highest rate in the country, according to the most recent figures from the Texas comptroller’s office.
“That’s where Texas could be doing a lot better,” said Groves.
Experts say a combination of higher fees since tuition deregulation and a lagging grant program is fueling the increases.
As of 2014, Texas students owed an estimated $75.6 billion in college loan debt, up about 7 percent from the previous year.
Texas tuition rates — once among the most affordable in the country — now are catching up to the national average and greatly outpacing health care prices, income, inflation and housing prices.
In a December report, the Texas comptroller’s office found in-state tuition and fees at public four-year universities grew 344 percent since 1990. By comparison, California has seen a 226.1 percent increase.
Meanwhile, Texas ranks second to last among the six largest states for state grant aid, according to Round Rock-based nonprofit Texas Guaranteed Student Loan Corporation — known in the industry as TG — which is leading extensive studies on the crisis.
As a result, 60 percent of Texas student aid comes from loans, compared to the national rate of 50 percent, TG found.
“We have much greater reliance on student loans,” said Jeff Webster, TG’s assistant vice president of research and analytical services. “Compared to states like California, we don’t have as much grant money per student, especially given our need.”
Delaying, shaping futures
Even though Neppl-Wilhite’s two children graduated in the top 10 percent of their Del Valle high school class, both could still face $60,000 in student loan debt.
Her son, Jacob Wilhite, is already hoping for a higher paying job when he graduates from Texas State University.
Meanwhile, Marissa Wilhite picked up a part-time job and raised $700 for a study abroad course on gofundme.com. Now she’s weighing a move back home to attend graduate school.
“Maybe I will be in a better financial place to help her at that point,” Neppl-Wilhite said. “I’ve already decided I’m not going to retire until my kids are done with college.”
As the student loan crisis grows, more young Americans, dubbed the “boomerang generation,” are returning home as they retreat from the housing and auto markets and even put off plans to marry.
In 2014, a record 11.7 percent of women and 17.7 percent of men between the ages of 25 and 34 were living with their parents, the U.S. Census Bureau reported.
Prior to the recession, young student loan borrowers were more likely than nonborrowers to have a home or car loan. That trend reversed by 2011, and now those borrowers are less likely to have a home or car loan.
“There is only so much debt that any of us can handle,” Groves said. “So as we make decisions to invest more in student loans, it’s crowding out our other investments in debt.”
Student borrowers also face lower credit scores, which reversed a trend seen before 2008.
“Having a student loan actually is a risk factor now,” Groves said.
The burden is even impacting marriage plans. The probability of marriage falls by 7 percentage points or more for every $10,000 in student loan debt, a 2013 study found.
Student borrowers are also more likely to put off plans to start a business and seek higher-paying jobs in lieu of lower-paying and public-service jobs.
David Maly, a University of Texas senior studying journalism and economics, says he may need to bypass his passion to work for a newspaper for a higher-paying gig.
“I might not be able to do what I want to do,” Maly said. “People are definitely worried in majors like journalism, because if they follow their passion, they are probably not going to make a lot of money in terms of paying back their loans.”
Leaving students behind
University of Texas student Jan Ross Piedad chose journalism as her major because it offered more scholarships compared to other communication disciplines.
The San Antonio native, who is the eldest child from an immigrant Filipino family, now estimates she’ll cover 30 percent of her debt with scholarships and forgivable loans.
“I think of it as Tetris, when you are trying to line up the pieces to get to the bottom (to owe nothing) …while all the blocks are coming at you at the same time,” Piedad said.
Experts worry that fewer minority and low-income students are taking deliberate paths to conquer their debt.
Texas colleges saw Hispanic enrollment fall 28 percent, or 149,790 students, short of 2015 state-directed higher education goals.
Another alarming trend: The number of white students enrolled at Texas colleges dropped for the fourth straight year, seeing a decline of 31,000 since fall 2010, according to data from the Texas Higher Education Coordinating Board.
Some say declines are tied low-income families, who are more risk averse and face an uphill battle to borrow against a rising tide of tuition rates. These students may delay enrollment, go to school part time or work full time while in school.
“It puts poor people in a real bind,” said Webster, the TG analyst. “They are scared about the amount of debt they may have to incur, and they try to avoid that burden by doing things … that make them less likely to be successful.”
College dropouts are three times more likely to default, TG has found. For example, the default rate for a community college graduate is 9.2 percent, versus 26.9 for those who don’t graduate.
The consequences are dire for those who fail to meet their debt obligations. Outstanding student loans can’t be relieved through bankruptcy and can be recovered through seizing income tax returns and garnished wages.
“The negative impact on defaulting is far-reaching,” said TG spokeswoman Kristina Tirloni.
Seeking a fix
In February, an Austin Community College task force gathered on campus to discuss a new strategy in the fight against the student loan crisis: Installing a default prevention plan.
The effort is part of a six-year, state-directed pilot program to reverse surging default rates. Eleven schools are taking part, including ACC and Tarrant County College in Fort Worth.
In conjunction with the Texas Higher Education Coordinating Board, students will be tracked on their payback plans as they receive heavy doses of financial literacy counseling, including face-to-face meetings. It’s a missing piece in the fight against the student loan crisis, experts say. TG is administering the program
“A lot of the default prevention efforts occur after students have left school,” Webster said. “This is trying to create a system that will … have students make wise decisions while they are in school.”
Meanwhile, students and policy groups such as Washington, D.C.-based Young Invincibles are lobbying for relief this session. State lawmakers are considering a 4.5 percent funding cut to community colleges even as the state’s coordinating board has called for a 13.8 percent funding increase, the group said.
“It’s the wrong direction to go,” said Colin Seeberger, spokesman for Young Invincibles, a millennial policy and advocacy group, which led a recent student rally on the issue at the state Capitol.
Meanwhile, to help prepare student borrowers, TG and the University of Texas each are now offering online tools to let students estimate future earnings versus debt based on their college and career plans. Policy groups are also pushing to streamline forms such as the burdensome Free Application for Federal Student Aid required for aid.
Addressing students’ needs before, during and after the borrowing process is key to ensuring success, experts say.
“It isn’t just go to school and you will be successful,” Webster said. “But go to school with a plan on how you are going to pay for it.”
Borrowers struggling with student debt can call Round Rock-based nonprofit Texas Guaranteed Student Loan Corporation, known as TG, with any financial aid questions. TG’s customer assistance line can be reached at 800-845-6267 or email@example.com. Those with federal student loans can also contact the National Student Loan Data System, the U.S. Department of Education’s central database for student aid, at 800-433-3243. More information is also available at nslds.ed.gov.
Special report: The Debt Trap
The Debt Trap is a collaborative project between the Austin American-Statesman, the Fort Worth Star-Telegram and WFAA-TV. It is focused on some of the key lending sectors that lead to heavy debt loads for Texans. This installment looks at the issue of student loans.