Help for college debt coming, but not soon enough for some

Bay Area college students hail a presidential proposal to ease the increasing costs of higher education — but wish they could get more help, faster.

This week, President Barack Obama introduced two changes to the federal student loan program to help new borrowers. An estimated 1.6 million students will be eligible for the new repayment plan, which allows student borrowers to cap their loan repayments at 10 percent of their discretionary income, up from 450,000 under the current system. Another 6 million will be able to consolidate their debt, in some cases slightly reducing their interest rates.

But current students already in debt — and the 36 million graduates now making payments — say it’s too little, too late. Nor does it apply to those who have defaulted.

“It helps, but I was hoping they would backdate it a few years,” said San Jose State graduate Milan Balinton, now earning his executive master’s degree in public administration from Golden Gate University in San Francisco. He will graduate about $60,000 in debt.

Obama has taken other steps toward college affordability, such as expanding tax benefits for college costs. It was not too long ago, he reminds students, when he paid off his own Harvard University debt. It’s also an effort to reach out to a crucial voting bloc.

The newest reforms will be most helpful to students who need to borrow in the future, like UC Berkeley sophomore Devonte Jackson, 19.

“The Advertisement Obama plan is definitely helpful,” said Jackson, a political-science major from Oakland who has borrowed $1,200 in federal money but will need more to graduate. The new repayment plan will particularly help low-income students entering low-paying careers, like Jackson, who works for the California Public Interest Research Group and seeks to be a community organizer.

But the new plan is not available to all borrowers, such as those with private loans, those who already are repaying, or those who are in default.

Student loan debt is a growing national problem, last year exceeding total credit card debt for the first time, according to the Federal Reserve. It’s on track to exceed $1 trillion within the next year. Only mortgage debt is higher.

Tuition is climbing. Yet because of the weak economy, many families find they can’t afford to contribute.

High school students say they’re worried.

“The price is crazy. But I don’t want to take out a loan because my parents would worry. My mom is the only one working because my dad lost his job. It is not good to take on a lot of debt,” said KIPP San Jose Collegiate junior Sherwin Aguilar, 16, of San Jose.

The debt places major burdens on graduates. Last year, the number of students who defaulted on their loans, and thus faced ruined credit ratings or revocation of professional licenses, increased by 22 percent.

Fear of debt causes some to accelerate their education. “I felt rushed, and worked hard to graduate in three years. You feel pressured to make up your mind and go with it,” said Scott Williams, of Santa Clara, who studied psychology at UCLA, then realized there was a better future in accounting.

It also influences career choice, he said. “A lot of very important career paths — like a master’s in counseling or master’s in education — people turn away from because of debt,” he said.

And it’s a drag on the economy; a paycheck spent on student loans isn’t going toward other things.

More than half of all University of California students have student loan debt, averaging $14,700. Nationally, the picture is even worse; the average graduate leaves school $24,000 in debt.

Nearly 8 percent of graduating seniors carry loans of $40,000 or more, according to the Project on Student Debt, a nonprofit advocacy group. In 1993, even adjusted for inflation, only 1.3 percent had debt that large.

“I would like to see more things that would benefit students now, rather than later,” said Williams, who will owe an estimated $30,000 — with interest now accruing — when he graduates with an advanced accounting degree from the University of Southern California.

“It’s helpful, but it won’t change the problem. For me, there won’t be that much of an impact,” he said.

Similarly, Sarah Sherwood, of San Mateo, said, “It would not help me. But I am happy it will help future graduates.

“Although a private graduate school was worth every penny, it would be nice to pay less under Obama’s new program,” said Sherwood, who borrowed in the 1990s for a graduate degree at American University.

To make matters worse, interest rates on federal student loans are set to double in July, according to the American Council on Education. This jump — from 3.4 to 6.8 percent — will cost a student with $25,000 in loans an additional $5,000 in interest expense over the next 10 years.

And many of the students in the deepest debt have private loans, unaffected by Obama’s proposal.

“The private loans are the biggest thing. Private loans are the most expensive; on one of mine, the interest rates will go up,” said San Jose State graduate Ashley Martin, 23, who’s getting her teaching credential. She’ll graduate in the spring with more than $50,000 in private debt.

She wonders how she will pay off the debt while working full time, for free, as a student teacher — a requirement for her credential. Martin now works two jobs, earning $900 a month, while spending $165 a month on a loan repayment.

Next year, her payments will jump to $375 a month. “It’s stressful,” she said.