Student loan debt strangles budgets
Every month that Gregory Zbylut pays $1,300 toward his law school loans is another month of not qualifying for a decent mortgage.
Every payment toward their student loans is $900 Dr. Nida Degesys and her husband aren't putting in their retirement savings account.
They believe they'll eventually climb from debt and begin using their earnings to build assets rather than fill holes. But, like the roughly 37 million others across the nation saddled with $1 trillion in student debt, they may never catch up with wealthy peers who began life after college free from the burden.
The disparity, experts say, is contributing to the widening of the gap between rich and everyone else in the country.
“If you graduate with a B.A. or doctorate and you get the same job at the same place, you make the same amount of money,” said William Elliott III, director of the Assets and Education Initiative at the University of Kansas. “But that money will actually mean less to you in the sense of accumulating assets in the long term.”
Graduates who can immediately begin building equity in housing or stocks and bonds get more time to see their investments grow, while indebted graduates spend years paying principal and interest on loans. The standard student loan repayment schedule is 10 years but can be much longer.
The median 2009 net worth for a household without outstanding student debt was $117,700, nearly three times the $42,800 worth in a household with outstanding student debt, according to a report co-written by Elliott last November.
About 40 percent of households led by someone 35 or younger have student loan debt, a 2012 Pew Research Center analysis of government data found.
Allen Aston is one of the lucky ones, having landed a full academic and financial-need scholarship at Ohio State University. The 22-year-old software engineer from Columbus estimates it let him avoid about $100,000 in debt.
Without loans to repay, Aston is contributing 6 percent of his salary to a retirement fund that is matched in part by his employer and doesn't have the same financial concerns his friends do.
“I'm making the same money as them, but they have student loans they're paying back that I don't. So, it definitely seems noticeable,” he said.
At the other end of the spectrum is Zbylut, an accountant-turned-attorney in Glendale, Calif. He's been chipping away at nearly $160,000 in student debt since graduating in 2005 from law school at Loyola University in Chicago. Now 48, the tax attorney estimates he could have $150,000 to $200,000 in a 401(k) had the money he's paid toward loans gone there.
“I'm sitting here in traffic. I've got a Mercedes behind me and an Audi in front of me and I'm thinking, ‘What did they do that I didn't do?' ” Zbylut said by cellphone from his Chevrolet. He's been turned down twice for the type of mortgage he needs to buy a home big enough for himself, the fiancee he would have married already if not for his debts and her 10-year-old son.
“I have more education and more degrees than my father, as does she than her parents, and yet our parents are better off than we are. What's wrong with this picture?” he said.
Degesys graduated in May 2013 from Northeast Ohio Medical University with about $180,000 in loans. The amount has swelled with interest to about $220,000.
“There were times where this would make me stay up at night,” Degesys said. “The principal alone is a problem, but the interest is staggering.”
Yet, as costly as medical school was, Degesys sees it as an investment in herself and her career, one she thinks will pay off with a higher earning potential.
Elliott says the country needs to re-think college financing options to bring debt down and graduation rates up.
“We can't let debt hinder a whole generation,” he said.