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How Much College Debt Is Too Much?

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Amy Letteri is a clinical psychology graduate student at Gallaudet University in Washington, D.C. By the time she graduates, she expects to owe $200,000 in student debt.
Emily Berman
Amy Letteri is a clinical psychology graduate student at Gallaudet University in Washington, D.C. By the time she graduates, she expects to owe $200,000 in student debt.

Amy Letteri was the first person in her family to apply to college. When she found herself with a stack of rejection letters, and not a single acceptance, she didn't really know what to do. Her high school suggested looking into studying abroad, and then reapplying to colleges in the United States. So, she enrolled at The University of East Anglia in the United Kingdom, which would actually be cheaper than a public college in the U.S. The only caveat was that she couldn't use federal loans to pay for a college abroad.

"'That's fine!' Letteri recalls thinking, "So my mom took out a private student loan thinking it would be the same. It's not!"

It wasn't long before interest built up on her $18,000 loan with Sallie Mae. After just a few months, Letteri and her mom realized the loan was going to be a problem, so she made the decision to leave after a year.

She came home, and applied again for colleges in the U.S. Letteri decided on Baylor University, a private school in Waco, Texas, with a program in American Sign Language. It was just what she wanted. But, she says in retrospect what she needed was somebody to sit her down and ask why she was going to Baylor, instead of a state school with a comparable program.

"I wouldn't have been able to give them a good answer, she says. "What that means is I spent $20,000 a year for no good reason."

Adding to the pile of debt

After completing her bachelor's degree, Letteri wanted to continue her studies. She was accepted into a PhD program at Gallaudet University in Washington, D.C.

By the time she graduates from her clinical psychology program, she expects to be $200,000 in debt. As a grad student, Gallaudet covers some of her tuition, and to pay the rest Letteri has two part-time jobs, on top of a full course load.

This year, she took out $20,000 in federal loans to pay down a chunk of her private loan. "I am probably going to still be thinking about my student loans when I have kids and have to start thinking about them and their college."

It's stories like these that prompted the federal government to make a change so that other students won't have it quite as bad.

'Pay As You Earn'

The change is a newly enacted law called Pay As You Earn. It's available to any U.S. student borrower, and some recent borrows repaying loans now.

Paying in accordance with your income is a concept that's been around for a few years, says Jason Delisle, president of the Federal Education Budget Project at the New America Foundation. The program expanded at the end of 2012. Under this program, undergrads can borrow around $6,000 a year; graduate students can take out loans for the entire cost of school and living expenses.

After students graduate, they pay 10 percent of their adjusted gross income (income after various deductions). This program "takes the concept of a loan and turns it on its head," says Delisle. There is no interest rate. Students who go on to work for nonprofits or the government pay their loans for 10 years. After the 10 years, the rest of their debt is forgiven. For those in the private sector, student debt will be forgiven after 20 years of payment.

The program has been available since the very end of December, and already students are jumping onboard.

Seeing the light at the end of the tunnel

Roman Makonnen, a social worker at an elementary school in northeast, is using the Pay As You Earn program to pay off her student debt. She took out a loan to earn her master's degree in social work at Howard University — that, on top of about $40,000 in undergraduate federal loans, left her owing $100,000 to Uncle Sam.

"I was excited it would be 10 years and not 30," she says of the program, "and it was nice to see there was a light at the end of the tunnel."

She will be paying that bill for 120 months straight. No breaks. If she stays at her current salary for the next 10 years, she would pay about $55,000, and have $45,000 forgiven. If she moves to a more lucrative job at some point in the next decade, her monthly bill will go up. But, most likely, her total payment will be a lot less than $100,000.

Jason Delisle says it's a good deal for people like Makonnen, but it also puts the taxpayer at a big risk. "You've got the incentives going in pretty bad directions for students and schools, where they can just borrow away and raise tuition away. And the only person who ends up baring the cost is the taxpayer."

Delisle recommends putting limits on how much grad students can borrow, and pushing more subsidies to undergrads.

Makonnen sees it differently. A master's degree is required for a lot of public service fields, she points out, and Pay As You Earn makes it easier to work in the lower-paying jobs in public sector and get out of debt. The program is helpful, she says, but certainly doesn't feel like a free ride.

Emily's story was informed by WAMU's Public Insight Network. It's a way for people to share their stories with us and for us to reach out for input on upcoming stories.
 For more information, click this link.

[Music: "You Learn" by Jon Brion from I Heart Huckabees]

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