Crushing debt: Students finding solutions to avoid or survive loans

Shroeder borrowed about $85,000 in college loans 15 years ago to earn a law degree at New York University. The federal government, and the Student Loan Marketing Association, commonly known as Sallie Mae, were her lenders. SLM manages more than $180 billion in debt for more than 10 million borrowers. Originally sponsored by the U.S. government, the company was privatized in 2004.

"I had taken out loans before and paid them off," Schroeder said. "People were talking about getting corporate jobs after law school, and making hundreds of thousands of dollars per year. The debt didn't seem so huge."

She missed passing New York's bar exam by four points, though, and never practiced law. By that time, she knew she wanted to write for a living instead of practicing law. Schroeder has since made payments equaling more than the principal on her loans, but interest kept growing when the loan was in forbearance during jobless periods, and the debt has ballooned to more than $125,000. She worked out an income-based payment plan with Sallie Mae, but it requires a monthly payment of $475. Schroeder said she can't keep up.

"Sallie Mae estimates a median lifestyle and income, not a New York City standard of living, which is way above average," Schroeder said. "I don't earn the kind of money to pay what Sallie Mae thinks I should, and I've run out of all options."

Even bankruptcy offers no relief for most. Student loan debt can't be discharged in bankruptcy except in extremely rare circumstances.

"It's kind of strange that you can't discharge this kind of debt," Schroeder said. "I have a whole group of friends with graduate degrees of every sort who are unemployed or underemployed and don't know what to do."

Whose fault?

Blame for the student loan crisis is shared by three groups, said Weiss. Lenders, including the federal government, are at fault, for predatory practices that make loans too easy to get and just as easy to rationalize — even though they ensnare students in debt they can never get rid of, Weiss said.

Schools are to blame for recruiting practices that convince students to cover high tuition payments with loans, Weiss said. For-profit schools are especially aggressive, he added. The schools have nothing to lose from hard-selling students, even though the job-placement rate figures for for-profit schools are untrustworthy and dismal.

Students share guilt in the student loan crisis for failing to investigate and do adequate research, and for being unrealistic about the chances of repaying their loans.

"There is culpability on all three sides but when all is said and done, the kid is left holding the bag," Weiss said.

Prevention is good medicine: Good planning and a bit of luck allowed Ohio resident Isaac Hess to earn an MBA degree at University of Iowa without incurring any debt. Hess didn't have holdover debt from his undergraduate days because he worked his way through Brigham Young University, living with his parents much of the time.

After graduating, he married — his luckiest move. Camber Hess, his wife, was a registered nurse with a decent-paying job. Both Hesses worked for three years after college before Isaac Hess started graduate school. Their combined incomes could have furnished an upper-middle-class lifestyle, but the couple lived like poor students.

"We discussed it early on," Isaac Hess said. "We wanted to keep our expenses based on our needs, not on our income."

While many of their friends were taking out mortgage loans, the Hesses rented a shabby apartment without a dishwasher near the hospital where Camber worked. The couple shared one car, but tried not to use it. Camber walked to work, and Isaac rode his bicycle to school most days. They did careful research before deciding about graduate school.

Although Isaac Hess was accepted at higher-ranked schools, he chose University of Iowa, still a top-50 MBA school, because of the school's good financial aid possibilities. His graduate assistantship at U. of I. provided a tuition discount and small salary. The couple continued living small, stretching Camber's nursing salary to make ends meet.