This is a part in a series of articles covering the issue of student loans. In this piece, the Ghostwriter investigated the national situation regarding student debt as a whole. For more articles, see Student Loans: An Investigative Report.

By Andy Dunn
Staff Writer

The reality of the world we live in today is that college is expensive, and the cost is only rising. The College Board approximates this annual increase in tuition costs over the past 10 years as approximately 2.1% for private universities and 3.2% for public universities. Many people are realizing that the cost of education can become unmanageable. As such, families and students often have to take out student loans to fund their college endeavors.

In response to this rise in cost, more and more families are struggling to afford the current cost of college. This growing trend has resulted in roughly two out of every three students graduating from Massachusetts colleges accumulating some form of debt as a result of student loans according to the Project on Student Debt’s comprehensive list of information on the issue. The average amount of debt is around $28,460, which means Massachusetts college students have the 12th most debt in the union.

“What I have been seeing on a fairly frequent basis is parents and students strapped with debt that is quite unmanageable and will set them back, in my view, a decade, or even two,” said Keele.

One of the most disastrous debt situations Keele has observed is when families utilize the equity in their home to pay college tuition bills. Essentially, in this scenario the parents, with the best intentions for their child in mind, are sacrificing their future for their child’s education.

Keele notes that when a family utilizes their home equity in this manner, there is the understated assumption that the value of the home will continue to increase. When an economic recession hits, just like the 2007-08 financial crisis, disaster can ensue.

“Your home can become worth less than what you owe on it,” noted Keele. “You now can’t sell your house because your house is worth less than the mortgage. Therefore, these people are often faced with potential bankruptcy scenarios.”

Unfortunately, Keele has seen this situation play out multiple times with families he has assisted. He notes one example of a family who spent $50,000 a year for their child’s tuition and had to ultimately sell their house and live in a mobile home due to their financial situation.

What makes matters even worse is when a family “mortgages their retirement and future” on paying “astronomical college tuition bills” to schools that, outside of Massachusetts, “no one has even heard of,” according to Keele.

Home equity loans are not the only way that college tuition bills can wreak havoc on families. One of Keele’s clients was a single mother, who helped send both her children to college by co-signing their student loans.

Besides the loans, this single mother would be “fine” in paying her other living expenses, according to Keele, but the student loans she co-signed for her children are “killing her financially.”

Her two kids both went to expensive private schools in Boston. The first child recently received a Master’s degree and has secured a solid entry-level job. The second child attended a college tied to the arts in some capacity and did not graduate. The second child is now waiting tables at a restaurant in the city.

This single mother, by co-signing her children’s loans, had over $250,000 in debt. Keele recalls he gasped when he told her this because “I wanted to say to this person you will die with this debt because the law is very clear: you cannot discharge student loan debt in bankruptcy. The exception is you have to show extraordinary hardship.”

You may think $250,000 in debt for a single mother living in an apartment may count as an “extraordinary hardship” but that is not close to the case. Extraordinary circumstances, according to Keele, are if you literally cannot work. Schizophrenia, bipolar disorder, being put on disability, is the standard.

“If you can work and breathe,” said Keele, “you cannot discharge your debt.”

Video: David Keele discussing a $325,000 college loan horror story.

And you shouldn’t be able to, Keele adds. College loans are not a compulsory force: no one makes students or parents take them. By signing for loans, the student and parents have to understand the risk and responsibility that comes with them.

One could imagine the tailspin the economy would be thrown into if it was easier for students to discharge their loans via bankruptcy, with anywhere from $902 billion (according to the Federal Reserve Bank of New York) to breaking $1 trillion (per the Consumer Finance Protection Bureau).

The Federal Reserve Bank of New York also reports there are approximately 37 million borrowers with outstanding students loans currently. Fourteen percent of all borrowers have had at least one past due student loan account according to the non-profit organization American Student Assistance.

The US Department of Education has reported a steadily rising cohort default rate on college loans, with an increase in the two-year cohort default rate (the percentage of students who defaulted on student loans at least once during a two year period) from 8.8% in 2009 to 9.1% in 2010 to 10.0% in 2011.

The important question to ask is why did this increase in defaults happen and how can it be fixed? Tuition rising at a rate that is three times as steep as cost of living, a virtually unlimited source of loans for students, and a lack of knowledge on finances in general all have played a role in the rising default rate.

“There has to be a more concerted effort, from both the universities and the federal government if not the state government, for more counseling as to how much debt you can incur and what you will have to pay when you graduate,” advises Keele.

Video: Keele discusses the role of financials in the overall college decision process.