GRANITE CITY — College-bound students should get full disclosure in the loans they are considering before they sign away their futures, according to U.S. Sen. Dick Durbin.
Durbin and U.S. Rep. Bill Enyart, D-Belleville, met with graduating seniors at Granite City High School Wednesday to discuss Durbin's new bill, the Know Before You Owe Act. Durbin proposed a similar bill last year, but this term's version has several co-sponsors in the Senate and Enyart intends to propose it in the House.
The bill requires colleges to inform students of their financial aid eligibility and their right to select a public or private lender, as well as requiring private lenders to ensure this counseling has taken place before the loan is signed.
The difference between public and private loans is especially important, Durbin said; public loans have a 3 percent interest rate and private loans vary as high as 18 percent, as well as other differences.
Students might not have any experience in borrowing money, Durbin said, and at age 18 they are signing loan documents that will shackle them to tens or hundreds of thousands of dollars in debt. He encouraged the students to apply for federal grants and scholarships, then use all the public loans available to them before borrowing from private lenders.
"These graduates are anxious to further their education and have a good life when it's over," Durbin said. "We need these young people to succeed, not only to be good employees, but job creators."
Beyond students and their families, student loan debt has a massive impact on the economy, Durbin said. The total student loan debt in the nation is now more than the total amount of credit card debt, he said.
"It slows down the economy, because you're paying back hundreds of thousands of dollars in student loans instead of buying a house," Enyart said. "It's a terrible drag on the economy."
It can be difficult for students' families, particularly those who are unfamiliar with the process.
Student Kirsten Robles said the first thing her college asked her was, "Are you willing to take out loans?"
Granite City parent Doug James joked that he "still had hair" when he began helping his daughter Ashli through her admissions counseling at St. Louis University.
"I'm the oldest of four and the first in my family to go to college, so this is completely new to all of us," Ashli said.
But the college provided assistance and a walk-through of the Free Application for Federal Student Aid, which determines what federal assistance is possible, she said.
According to the Project on Student Debt, the average college student in 2011 had $26,600 in debt at graduation. Their unemployment rate was 8.8 percent — which is still better than that of their classmates who did not go to college, who had an unemployment rate of 19.1 percent.
"I don't want to scare you away from college … It's the single best thing you can do for your life," Durbin said. "We just want to keep you from making bad decisions."
Enyart told the students that his military service paid for all of his education, and that in Illinois, service in the Illinois National Guard will cover 100 percent of tuition to any state college.
Durbin advised the students that they also can save money by starting at a community college and transferring early credits to a four-year institution, exhausting all grant and public loan possibilities before approaching a private lender, making sure they do not borrow more than they actually need, and avoiding for-profit colleges.
About 12 percent of high school graduates go to for-profit schools, Durbin said. But those students account for 47 percent of the loan defaults.
"The degree isn't worth as much, and they can't get a good-paying job," Durbin said. "(For-profit schools) are making a lot of money at the expense of students."
Durbin used the example of George Jacobs, a constituent from Chicago who borrowed $60,000 in private student loans to attend a for-profit college. Upon graduation, his degree would only earn him a job making $30,000 a year. Due to variable interest rates, his loan is now $100,000, and over the course of his life he will pay back more than $250,000.
Durbin said Jacobs now pays $1,364 a month — half his salary — on his student loan and still has not been able to tap into the principal; he's only paying interest.
Durbin reminded the students that their educational loans cannot be discharged by bankruptcy — something else he would like to change. He has already introduced the Fairness for Struggling Students Act, a separate bill that would treat private student loans the same as any other private debt, including the ability to discharge them in bankruptcy. Public loans would not be affected, but Durbin said that bill is an "uphill battle," as the banking industry is opposed to it.
"In the most extreme cases, these students are so deep in debt that they will never get free," Durbin said. "They ought to be able to discharge those loans in bankruptcy and get on with their lives."
Tracy Wall, assistant director of financial aid at Southern Illinois University Edwardsville, said that students frequently turn to private loans because they've hit their limit in borrowing on public loans — currently a maximum of $5,500 a year. She told Durbin that it would be helpful to increase the public loan limits.
Durbin said while the federal government recently increased the Pell Grant total, there has not been discussion of increasing those limits. "It's definitely something to consider," he said.