Bryan Mitchell has always taken pride in getting a good education. “College was the next step after high school. There was no question about it, no breaks in between,” says Mitchell, who holds a bachelor’s degree in business administration from The University of New Haven (UNH). But the cost of attending the private institution has left the 25-year-old saddled with $120,000 in student loan debt after four years.
Mitchell’s debt is a combination of money he used for UNH’s tuition and fees, estimated at $15,000 per semester. All together he has two subsidized federal loans (through Sallie Mae) at 6.5% and eight unsubsidized bank loans with interest rates ranging from 2.5% to 9.75%. Each month he pays $700 toward the interest. The debts are nearly one-third of his $2,600 monthly net income.
With his large education debt, Mitchell isn’t terribly unique. As of June 2010, for the first time ever, Americans collectively owed more in student loans than in credit card debt, according to Mark Kantrowitz, publisher of FinAid.org and FastWeb.com. In August, Americans owed $826.5 billion in revolving credit accounts and about $830 billion in federal and private student loans.
Financial experts consider education loans to be “good debt” because students use the borrowed money to increase their earning potential. But student loans can be burdensome and can take 10 to 20 years to pay off. Today, the average college undergraduate leaves school with roughly $20,000 of loan debt while the typical under graduate student amasses debt ranging from $30,000 to $120,000.
A do-it-yourself attitude led to Mitchell’s whopping education debt. “I didn’t seek help from anyone, not my parents, no family or friends. I wanted to do things all on my own,” he says. “I have been really independent ever since I was a little kid.”
Mitchell began his path to college financing on the right foot: He filled out the Free Application for Federal Student Aid, the form financial aid offices use for awarding funds. His mistake, he now realizes, was that he didn’t actively seek assistance from his university’s financial aid department. A counselor there could have helped him investigate any loans, grants, and special programs for which he might have been eligible. Instead, he opted to borrow directly from various banks whose interest rates on student loans were relatively high.
Loans from private banks are attractive to many students because the application process may be easier, but in the long run, private loans are typically more expensive. Banks charge a higher rate of interest because the student doesn’t put forth collateral for the loan.
Mitchell isn’t making the same mistakes with his graduate education, which he hopes to complete by 2012. His employer is paying for his master’s degree in management from Saint Joseph College in West Hartford. He works full time as an admissions officer at Goodwin College in East Hartford, and he earns $40,000 a year after a recent promotion.