Editor’s note:

The following is the second part of a five-part series on student debt.

Jonny Choate, junior in political science, tried to follow the process his brother went through when his brother financed college at Upper Iowa University. His elder sibling went through Iowa Student Loan and came out with a total of $32,000 in debt. After going through Iowa Student Loan and Wells Fargo for private loans plus federal loans, Choate will have over $50,000 in debt by the time he graduates after nine semesters at Iowa State.

“I didn’t really have much money coming in [to college],” Choate said. “I had an account saved up, but I ended up needing to purchase a car with it before college.”

Choate said he was set on attending Iowa State “off the bat,” and gave little thought to other choices for his education, although it wasn’t until his junior year when he actually found his major. When he started going to Iowa State, he first financed his education through Iowa Student Loan.

“My dad had taken care of my brother’s, so he’d gone through it before, so he planned to do the same thing for me through Iowa Student Loan,” Choate said.

Choate ran into an obstacle when he contacted Iowa Student Loan to reapply his sophomore year and was told to find another lender.

Iowa Student Loan did not go bankrupt nor did it close its doors; rather, the credit market crisis affected the availability of student loans.

“At its peak in 2008 and 2009, it caused a reduction in the private student loan options available to college students,” said Steve McCullough, chief executive officer of Iowa Student Loan Liquidity Corp. “Since then, Iowa Student Loan has been working with its partners to rebuild Iowa students’ supplemental funding options.”

Choate went to private lenders, but the situation was further complicated when he scrambled to find a co-signer for a Wells Fargo private student loan as his sophomore year approached. Five family members — two aunts, both parents and a grandfather — were rejected when Wells Fargo said they did not have adequate credit.

“My aunts had bad credit and my dad is a small business owner, which he filed bankruptcy for,” Choate said, adding his grandfather is retired.

Choate lives in Frederiksen Court with three roommates from his high school — each of whom is in a financial situation he’s jealous of. Choate said two have most of their expenses covered by parents, and the other has every dime covered by the federal government as a member of the Air Force.

Choate found slight relief his junior year after obtaining a Stafford Plus loan through the government, which he said was a much easier process.

“One thing that was beneficial to me was going through the university to get my private loans,” Choate said. “I think they should try to make that the main option instead of students going to Wells Fargo or a private bank.”

Rachel Curtis, graduate student in sociology, said her jaw dropped when she completed her undergraduate studies and got her first bill showing her $38,000 debt.

Curtis took out debt through various federal and private loans while at Iowa State or holding internships. She kept a part-time job at a restaurant throughout her career at Iowa State.

Curtis pointed out one area she attributes to her debt was living in dorms.

“The dorms are way more expensive,” Curtis stated. “The convenience is not worth it. And actually my academics got better when I moved off campus, there were fewer distractions.”

Curtis has also taken part in several on-campus groups and internships during her summers.

“I understand the increase in tuition because the university is losing money,” Curtis said. “But the debt makes me sick to my stomach.”

Iowa State sets aside tuition revenue each year to go back as financial aid in grants. Roberta Johnson, director of financial aid at Iowa State, said the university is required to use a minimum of 15 percent, but they currently take closer to 27 percent.

There is a limit Iowa State sets for student loan amounts, which Johnson said is a safeguard for both lenders and students not to compromise their financial futures.

State Rep. Peter Cownie of West Des Moines feels like there could be a direct relationship between the high levels of student debt and a lack of understanding about credit. He is the president of Junior Achievement of Central Iowa, a nonprofit group that teaches students K-12 about financial literacy, entrepreneurship and overall economics.

“When I was in college, I knew a lot of kids who didn’t know what a credit card was, didn’t know what a mortgage was and didn’t know what credit card debt was,” Cownie said. “Once people are out of college they really need to know what those things are.”

He suggested financial literacy is key to curbing the high level of debt in Iowa and said it would be a good thing for colleges to advocate.

Johnson similarly said there is a great need for financial education, considering student loans are often one of the first experiences young people have with credit. The federal loans require an online training session, but up until recently, nothing was required for private loans.

“Lenders who did anything different were doing it for one of two reasons: Either they had a good heart or they knew it would affect their bottom line,” Johnson said. “Because the more counseling they did up front, the less likely the students would default on the back end.”

Congress passed legislation in the Truth in Lending Act that now requires more disclosure for students getting private loans, but no mandatory financial counseling.

“It is mandatory the student get a form from their school showing what the total cost of attendance is and what their other financial aid is,” Johnson said. “There’s a requirement the student receive at least three disclosures from the lending institution.”

Those disclosures include total loan amount, expected interest to accrue over the life of the loan and possible repayment plans available. Additional regulations require the schools to let student know federal loans may be more advantageous than private loans, Johnson said.

Johnson said there have been discussions about a required financial literacy course similar to Library 160, and she points out that direct loans require an online training experience.

Choate wants to be better educated on what’s coming after graduation. Choate said when he applied for his private loans there was no counseling from either lender, and his father filled out all the paperwork.

“I never actually went in, all I had to do was electronically sign online,” Choate said. “I’ve never gotten any education at all. I think it’s something where you kind of dig yourself into a hole, and when you’re out you start getting payments thrown at you.”

Although Iowa State has a higher average student loan debt, ISU students have a lower default rate: 2 percent in fiscal year 2007 against a national average of 6.7 percent, according to the Department of Education.

Peter Orazem, economist and Ames City Council member, said the increase in availability of loans correlates with an increase in tuition.

“It’s clear that loans are easier to obtain now than they used to be,” Orazem said.

He cited the smaller family unit, which allows more money to be put behind each child, and the higher value placed on a college education.

He questioned whether Iowa State is atypical in creating debt for students, or if the school simply attracts more students who need loans to attend.

The new director of ISU Ambassadors, Jessica Bruning, sophomore in political science, had conversations with her parents over that subject.

“Iowa State is thought of as a largely agricultural school,” Bruning said. “So a lot of students are going home to be farmers, whereas the University of Iowa is turning out lawyers and doctors.”

Iowa’s median household income level in 2006 was the second-lowest among the 11 states where regent university institutions are located. A college degree, though, does increase earning potential.

Orazem said the basic principal that the richer one is, the more debt they can incur — suggesting perhaps that students take out greater debt, but also make more over their lifetime.

On July 31, 2008, ISU graduates have a median starting salary of $45,400 and a median mid-career salary of $84,600, according to data from the Wall Street Journal. Iowa State ranks above the national median starting salary for a state school of $44,126. However, the University of Utah has an identical median starting salary, but Utah also ranks as the state with the least average amount of student debt.