Degrees of debt

Rising bankruptcy rates and a lack of jobs among holders of bachelor's degrees leave many asking, "Is college worth it?"

The number of Americans with bachelor's degrees who filed for bankruptcy has steadily risen over the past five years -- and that spells trouble for the millions who are taking out big student loans to try and educate themselves out of the Great Recession.

Data released last month found the percentage of those filing for bankruptcy with bachelor's degrees rose from 11.2 percent in 2006 to 13.6 percent in 2010. Those with master's degrees or higher rose at a similar rate.

For Leslie Linfield, executive director of the Institute for Financial Literacy, the Maine-based nonprofit that conducted the study, it shows the "American dream" that an education guarantees success is fading, and fading fast. The growing debt burden will create new problems for younger Americans -- many of whom are borrowing $30,000 or more to get degrees that don't have the best job prospects.

But does it mean a college education is not worth it?

The slowing economy, coupled with rising tuition, is challenging the notion of college as a fail-safe investment. The rising bankruptcy filings among graduates add fuel to the argument that college may be overpriced and overrated.

So families considering college must now ask: Is it worth the cost? And if so, how much is it worth?

One study says college still pays strong dividends, at least in the long run. Eighteen-year-olds who invest $100,000 in college today will see a greater return on it than any other investment they could make -- including gold and the stock market, according to research by the Brookings Institute's Hamilton Project. By the age of 50, the average college degree holder out-earns his high school counterpart by $46,000 per year.

Economist Gary Keith, who works for M&T Bank in Buffalo, pointed out that unemployment, even during the Great Recession, has hovered around 4.5 percent nationally among college graduates.

"The more you know, the more you can learn, the better you'll be positioned long term," Keith said.

The Brookings study argues that going to college pays back with higher earning potential throughout a person's working life.

"Higher education is a much better investment than almost any other alternative, even for the 'Class of the Great Recession' (young adults ages 23-24)," said the study by Michael Grenstone and Adam Looney. "In today's tough labor market, a college degree dramatically boosts the odds of finding a job and making more money."

The study considers lost income while in school, in addition to the tuition. A four-year college degree will yield "returns 15.2 percent per year," the study said. "This is more than double the average return to stock market investments since 1950," the study said. "From any investment perspective, college is a great deal."

Yet in the near term, college graduates run the risk of having student loan debt seriously burden them. Data released by the U.S. Department of Education last month showed 3.6 million Americans began repaying student loans in 2009. By the end of 2010, 320,000 people, or 8.8 percent, had already defaulted on those loans.

The default rate was higher among students who attended for-profit schools, at 15 percent. These institutions, such as ITT Tech and the University of Phoenix, have been the target of much criticism since their degrees are taken less seriously by many employers. ITT Tech students alone had a default rate of 22.6 percent.

Between expensive liberal arts schools and for-profit colleges, many who borrow to go to school aren't realistic about the job prospects once they get that degree. Linfield calls it the "American myth" -- the idea that "every kid has to go to college, every kid has to get a college degree, every kid has to go to the best college."

"We are creating a generation of young people so indebted, so burdened, that they might not be able to buy homes, start families, save for retirement," Linfield said. "It's becoming America's irony, and this is not what we should be doing to young people."

Unlike other debt, there really is no way out of repaying student loans, said Todd Brown, an associate professor at the University at Buffalo who practiced bankruptcy law.

"The standard to get rid of student loan debt in bankruptcy is just exceptionally high," Brown said. "Most other kinds of debts you don't have to jump through those hoops."

Linfield said the only scenario in which she has seen student loan debt forgiven involved an extreme illness -- a debtor had good payment history but was diagnosed with Lou Gehrig's disease and a jury agreed that made him unable to pay.

Other than that, there aren't many ways out -- something debt-ridden students are trying not to think about. The problem can be magnified for those with expensive post-graduate degrees.

"I'm graduating next year with $90,000 in debt with no real leads on anything," said Robert Galbraith, a third-year law student at UB originally from East Aurora. "I work in the nonprofit sector right now, volunteering basically, it's great experience and I love doing it but I can't do that forever."

Recently, law schools have begun to turn out more graduates than the industry can support. Linfield said engineering and nursing are two fields where taking out significant student loans will almost always be worth it, but in many cases, borrowing big amounts will just lead to trouble.

Many have argued that "a bachelor's degree is the new high school degree," and it's best to get one, even if it's not in an employable field like nursing or engineering. And while Linfield doesn't argue that students shouldn't pursue higher education, she thinks they need to be more realistic about the cost and benefits of taking on debt to do so.

Keith agreed, saying that there needs to be more of a discipline to the student loan process, so "the people who are taking out loans know they're going to be on the hook for it."

Kate Krantz-Odendahl, who graduated with an English degree from Cornell University in May, said she thinks there are many students out there who should still seek a degree, even if it means taking on debt.

For those who get a degree in the humanities, she says, "the question of where it will take you is ultimately irrelevant. Where you will take it, on the other hand, is the real driving force" at the foundation of those principles.

Krantz-Odendahl, who is currently in Mexico helping educators there work on a bird migration study, admits that she was one of the lucky ones -- through assistance offered by Cornell, she graduated with only $12,000 in debt.

But those with significant student loan debt should pay it off as quickly as possible, Linfield said, and do three other steps to avoid bankruptcy: pay off credit cards every month, save 10 percent of whatever you earn and participate in your employer's retirement plan.

"If you do those things you'll really minimize the odds of ending up in bankruptcy court," she said.

Yet, as student loan debt hangs over the heads of millions of educated Americans who can't find work, many may soon conclude that the "American dream" of getting educated and finding a job "may just be a lie," said Paul Fusco-Gessick, who is on the job hunt after graduating from UB Law School this spring -- with more than $100,000 in debt.

"When people start realizing en masse that so many of us were manipulated into purchasing these extremely expensive degrees with blood money that we will never, ever realistically be able to pay off -- and we will never, ever be able to discharge in bankruptcy -- that's a recipe for unrest, at the very least," Fusco-Gessick said.

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