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The Honolulu Advertiser
Posted on: Thursday, December 2, 2004

Here's a college loan concept that's worth consideration

By Michelle Singletary

WASHINGTON — For many people, a higher education is a ticket to a high-paying job.

But what happens when the cost of that same ticket becomes a deterrent for a career that will pay a modest or middle-income salary?

"My worry is that even if people can afford to take out the loans, their career choices are going to be biased in favor of paying off their loans — biased in favor of careers that will make more money," says former Secretary of Labor Robert B. Reich.

I recently had the pleasure of hearing Reich speak to several hundred financial aid professionals attending a conference in Phoenix.

Reich, who holds the title of Hexter professor of social and economic policy at Brandeis University, spoke with compassion for the many people who are graduating from graduate and professional schools with a record amount of student loan debt.

But worrying isn't going to help people pay for their education. We have to come up with bold, creative solutions to address the rapidly rising costs of higher education and the steady reduction of government-subsidized help to finance such education, Reich said.

In fact, Reich has an idea — an idea that I think is worth debating.

What would you think of a student loan program in which people attending graduate school would pay back a small percentage of their annual salary over a 10- or 15-year period? Everyone would pay the same percentage regardless of income.

All the money would go into a general student loan fund and then be lent to others going to graduate school. Private lenders could provide the loans, which would be guaranteed by the federal government.

"This would allow people to follow their hearts rather than make a lot of money," Reich excitedly told the conference participants.

True enough, when faced with high student loan debt, many graduates are reconsidering careers in public service.

Since 1975, the share of new lawyers who entered public-interest fields has declined from 5.4 percent to 2.9 percent, according to a survey by the National Association of Student Financial Aid Administrators. At the same time, the proportion of new law-degree holders who got jobs in private practice rose from 49.2 percent to 58.1 percent.

It's understandable why people may forsake goals of working as public school teachers, counselors or public defenders and, instead, go for the money.

For people who received master's degrees in arts, sciences, education, and business administration at private institutions, the median loan repayment burden was equal to about 11 percent of their starting salaries.

For law school graduates from private institutions, student loan repayments accounted for 16 percent of starting salaries.

To avoid financial difficulties, lenders and education analysts often suggest that borrowers' post-college loan repayments of all kinds should amount to 10 percent or less of their gross annual salaries.

That's tough when your starting salary is overshadowed by large student loans. For example, law and medical student borrowers report an average accumulated debt from all years (undergraduate and graduate study) of $91,700, while the average combined debt for all graduate students is $45,900, according to student lender Nellie Mae.

In 2002, the median annual starting salary of new lawyers who entered public-interest fields was $36,000 compared with $90,000 for those who got jobs with private-practice law firms, according to the report by the financial aid administrators.

The average starting salary for new graduates with master's degrees in engineering was $57,370, while graduates who received master's degrees in education had an average salary of $34,737, according to data from the National Association of Colleges and Employers.