College Students Get Schooled In Real World Debt
By Amanda Ingersoll
Debt-to-income what? Debt-to-income ratio. The financial aid term that refers to how much money you make versus how much you owe. What does it have to do with your education? If you or your parents are like the majority of middle class Americans, already swimming in credit card debt, that number determines how easy or difficult it will be for you to be approved for college loans.
For most students today, the question is not whether or not to take out a loan for college, but rather how much the loan will be. It’s a foregone conclusion these days that you will graduate college with a substantial amount of debt. Yes, there are still those trust fund kids out there and those who receive full-ride scholarships to the college of their dreams, but since they are so few and far between (and the fact that my resentment for their mere existence runs deep) I’ll pretend for now that they don’t exist.
My first semester at a liberal arts college in Manhattan cost me a small fortune. My circumstances were not that of the traditional aged college student (27, divorced, living on my own) but what I had in common with my soon to be classmates was my desperate need for money to fund my tuition and my living expenses, in what is one of the most expensive cities in the world.
In January 2005 I borrowed $15,000 in college loans from Citibank. I, like many others applying for college, still needed my parents to co-sign for my loans. Already swimming in debt from a failed business and failed marriage, you could safely say my credit was less than perfect. But I was able to swing the loan and move to the big city to start my life anew. At roughly $600 per credit, a full load of classes (15 credits per semester) put approximately a $10,000 dent into my loan. Figure in a studio apartment at $1,275 a month and you see where I’m going with this. The bottom line is even if you aren’t living in New York City, the cost of going to college is skyscraper high. Tuition costs at many of the nation’s universities could easily make up the difference in the astronomical cost of housing in Manhattan.
Here’s the problem—two years later—try again to apply for that same loan. That is if you have come to grips with the fact that yes, you will be in enormous debt when you graduate, but at this point you’ve come too far to turn back. The same lender who took the chance on you two years ago can turn around and call you a liability because now that you have the loan they gave you, your debt-to-income ratio disqualifies you as a borrower. Am I missing something here? Did the lending institution that knew I was enrolling in college so that I could get a job to pay the bills I already had, somehow think that miraculously I might have increased my credit-worthiness while still pursuing that all important diploma?
What I find most fascinating about this dilemma—it wasn’t until my sophomore year in college that I came across Hamlet’s famous words, “Neither a borrower nor a lender be.” Now that’s what I call a tragedy.