Americans are going back to college — not because they want to better their education, but so they can have easy access to low-interest student loans.
More than ever before, student debt — which has risen to a record $1.2 trillion — is being used for personal and living expenses, reports The Wall Street Journal
In addition to tuition and books, student loans also cover living expenses, a nebulous category whose amount is determined by each school. The Department of Education inspector general has cautioned that among eight online institutions, noneducation expenses — rent, transportation, and "miscellaneous" expenses — comprised more than half of students' financial aid.
Fraud also is a likelihood, according to the Education Department's report, which found that 42,000 students from those eight online institutions collected an average of $5,285, yet didn't earn a single education credit.
Other students taking out loans are working toward their degrees but tell the Journal that they can't find jobs that pay enough to cover living expenses.
A 32-year-old married father of five said the $10 an hour he earned working mall security left his family in the red. About $2,000 of his annual student loan money bridges the gap, helping the family buy groceries and pay bills. He currently owes $51,600 in federal loans.
"We've been taking whatever we can for student loans every year, taking whatever we have left over and using it to stock up the freezer just so we have a couple extra months where we don't have to worry about food," said Tommie Matherne.
John Smith, a 1997 University of Oregon grad who spoke to U.S. News & World Report
last year, said he took out as many loans as possible to finance "an expensive lifestyle in college" that included such luxuries as televisions and a Jeep.
"Every quarter I got more free money," he said. "I needed new clothes. I needed a cool car. I needed a nice place to stay."
When he graduated with a marketing degree, Smith owed $40,000 — $1,400 per month — and he didn't have a job.
His situation is not uncommon.
Seven out of 10 class of 2012 graduates used student loans. They left school with an average of $29,400 in student loan debt and, a Federal Reserve Bank of New York economist told Time
, the numbers are likely to grow.
Unlike traditional bank loans, the government does not require credit checks for student loans, and even if a school thinks students are "over-borrowing," federal law and Education Department policy forbids the denying of funds.
While legislation is being discussed to lower maximum loan limits for part-time students and others, loan refinancing, both for public and private loans, is catching fire, USA Today reports
Citizens and Charter One banks in January launched an Education Refinance Loan program for private student loans. There are no application or origination fees and fixed rates start as low as 4.75 percent APR and variables starting at an APR of 2.8 percent, according to USA Today.
You have to be employed and you're in the best position if your credit score is good, particularly if it has improved since those loans were taken out," Bankrate.com chief financial analyst Greg McBride said.
Skyrocketing tuition prices — up 70 percent between 2001 and 2011 — and the recession have contributed to the rise in student debts and deficiencies, according to Time. With consumer purchasing being the "primary driver" of the economy, significant student loan debt is contributing to the dragging economy.
Graduates with hefty debt are often unable to qualify for bank and auto loans, slowing down the housing and construction markets, according to Andrew Haughwout of the New York Federal Reserve.
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