A College Debt Nightmare

A reader recently sent me a link to this story from the Pittsburgh Post-Gazette (hello to all my friends and family in Pittsburgh!!!!) that details the college debt racked up by a resident there. The details:

Student loans were a fact of life for Marjorie Dillon and she was OK with that -- even though she didn't keep close track of how much she borrowed or completely understand the agreements. She and many of her former classmates at Robert Morris University in Moon relied on loans to pay tuition and expenses.

Ms. Dillon, 26, of Coraopolis, was the first in her family to attend a four-year university and loans were the only way to finance the business administration degree that would be her passport to a better life.

But six months after graduating with her bachelor's degree, Ms. Dillon is making $7.25 an hour plus tips serving beer at a bowling alley, working 25 to 30 hours a week. She's nearly $120,000 in debt, behind on her bills and, despite her best efforts, cannot find a better job. Her 80-year-old grandmother co-signed for the loans and could lose her house in North Fayette if the debts are not repaid.

Ms. Dillon's college debt has ignited an emotional family drama that which includes her grandmother and her disabled father who raised three children as a single dad. He lives with his mother and receives $598 a month in government benefits.

Ugh. What a nightmare. But as we get into the story, you'll see that this woman was her own worst enemy.

The newspaper contacted her college to discuss the case and after Marjorie signed a release form to let them talk, the details of the case came out. In particular she:

• Did not submit the Free Application For Federal Student Aid (FAFSA) on time so she didn't qualify for federal student aid and state grant money. That's FREE money that she would likely have had access to. I can see missing the deadline one year (maybe she didn't know), but she missed it for three years. You think she would have gotten a clue. Especially when she got counseling: "I can assure you she was told about the ramifications of borrowing," Mr. Frantz said. "She satisfied the entrance loan counseling requirements which the federal government requires to make sure they understand the implications."

• Lost her eligibility for government aid because her grade point average fell below a 2.0. Yikes!

• Failed to pass at least two thirds of the academic credits she signed up for, another requirement for eligibility. Double yikes!!!!

• Borrowed more than the amount needed to take classes ($43,290 over the cost of tuition and fees.) And she was not a resident student.

And just when you think things couldn't get any worse, they do. Specifically, she's spending way too much money. The paper had a financial planner meet with her to give her some advice. A few of his suggestions:

• Move in with her grandmother if possible to save $600 a month on rent.

• Eliminate the $120-a-month cable and Internet bill. (Yes, you read this correctly.)

• Erase the $329-a-month car payment by selling the vehicle and using public transportation.

• Try to renegotiate the interest rate on her credit cards to reduce those $300-a-month payments.

• Reduce her $150-a-month cell phone plan. (Yep, you read it right again.)

And some additional details just to round out the nightmare:

• She thinks she could get a job making $30,000 a year.

• A quote from her: "Every student takes out extra for living expenses. We don't work. But I'll do what I have to to make it. Yes, it will be hard. I've only made one payment and it's already hard." She's already made ONE payment and it's hard? Ugh.

• The article notes that her situation could be a worst-case scenario since the average cumulative debt for four-year college graduates is $22,656.

• Bankruptcy is not an option. From the paper: "Ten of Ms. Dillon's loans totaling $108,639 were private signature student loans through the SLM Corporation -- commonly known as Sallie Mae -- which cannot be consolidated, forgiven, deferred or erased in bankruptcy. Two of her loans, totaling $9,000, are federal government loans."

The paper makes the following conclusion:

Beyond illustrating the perils of student loan debt, Ms. Dillon's story also shows the consequences of a lack of financial planning, missing federal aid application deadlines and not meeting academic requirements for federal programs.

Ya think?

This story is so strange in so many different ways. Here are my thoughts on it:

1. Obviously, this woman was clueless. She had no idea what she was doing in so many areas. I've re-written these sentences over and over a few times to try and be a bit kinder, but there's really no other way to say it.

2. If she did have any sort of clue, I would say, "What were you thinking?" How do you expect to pay back $120,000 in debt with a job that makes $30,000 a year? That kind of debt is what doctors rack up -- and they certainly make more than $30k. This is exactly what I was talking about when I wrote How to Make the Most of a College Degree. You have to match the amount you borrow for college with the salary you can expect in your career. Otherwise you end up in a situation like this -- too much debt for the amount you can earn.

3. Many people (especially in the past) haven't really considered the cost of college in relation to the expected payoffs. I think this trend is slowly reversing itself. People seem to be more aware of the fact that they need to consider the numbers before the plunge into the college world.

4. She obviously doesn't even have a basic knowledge of personal finances. Her spending is way out of whack. Even if she kept the cable and phone, she should be able to get them both for much less money.

5. It's a shame that the situation has impacted her family so much. And now she has a daughter that needs to be cared for. Can this situation get any worse?

6. I'm not sure if it's lack of intelligence, a poor work ethic, or something else, but why did she borrow so much money and base her life on a degree, then fail so many classes? It's just so strange.

I'm sure many of you will have thoughts on this situation. Have at it in the comments below.

Comments

[Gia]

"She's a 1st generation college student." (Nick)

What does that have to do being silly and irresponsible? I'm a first generation college student, and you best believe my FASFA was in early!

This person fits the classic notion of an "educated fool."

[AJ]

I am in a similar nightmare but at least I went to a top 5 school. I am confident I will be able to pay it off. I just hope sooner rather than later.

[suitifiable]

What's with the crazy sense of entitlement among working-class youths? College is not for everybody, and no-one is entitled to a middle class lifestyle. She had so many other options- she could have gotten married, she could have earned a cosmetology degree for much less $$$. Her and a husband could, over the years, have saved enough money to put their son through school and live out their dreams that way. But instead she decided to screw her whole family and put them through a financial rollercoaster just because she thought she *deserved* a better life. Sorry honey, not everybody gets to live like those kids in the OC. If you actually *deserved* a college education, someone would have noticed you in high school and hooked you up with scholarship money. Enjoy your $7.25 an hour at the bowling alley hot dog stand; hope you're too busy to think about the family you destroyed in your quest to fail your way towards a bullshit degree. ^_^

[Joe Taylor Jr.]

What's really sad about this? Not many colleges offer their students any kind of real financial guidance beyond "get the FAFSA in on time."

My wife started working right out of high school, and we make about the same salary. While I have been able to use my degree to earn a little bit more per year, she had a four year head start on me, and no student loans. If you're really passionate and smart, you can find a job that will develop you and let you grow into the kind of paycheck that some recent college grads think they're automatically going to get.

[Jillian]

I have a friend that is going to college for her BA in Business. She is a part-time student, taking two classes per semester. She has been back in college for a little over a year now and has failed two classes, called on Friday to drop her current class and take another F - yet she still is collecting government funds and student loans. I have called the school to find out how she can fail and still get money - they said she can do it several times! I think they make it to easy to get money. I think they need to look at things like the person's ability to pay back the money [my friend is 55 years old - she will never be able to pay the money back!] In fact she purchased a house last year [$60,000 on a $9.50 per hour job - the bank told her that she needed to get her pervious student loans deferred for one year before they could loan her the money for the house - that's so stupid! She will never be able to work long enough to pay for her house, car, and student loans - yet they keep giving her money! They need to make things harder and make the students prove where the money is going cause I know that my friend spends it on car payments, stove & frig, washer & dryer, paint for her house, to make credit card payments - everything but college! I'm sick of it! Thanks for listening to my rant :-)