Going to college always has been a gamble for students taking loans. They bet on a college degree conferring higher earnings that will let them settle up after graduation.
For most, the gamble pays off: The unemployment rate for college graduates is half the rate for those with only a high school diploma.
But a growing number of college graduates are falling short and quickly defaulting on their loans. And the trend is not just happening at private, for-profit schools.
Public college students in the Central Valley are defaulting at nearly twice the rate their peers did six years ago, federal data show.
Current students borrow more because student fees continue to rise at California State University, Stanislaus, the University of the Pacific and the University of California at Merced.
Recent graduates default more because the job market, while improving, is not back to full strength, leaving thousands underemployed in jobs that don't require a degree.
CSUS student Stacy Canales, a senior, said she has not had to take out loans for her undergraduate studies, thanks to financial aid. But she is worried about accruing debt when she goes for her master's in marriage and family therapy counseling. She said the degree could cost her up to $32,000.
"It makes me nervous," she said. "But I'm hopeful I'll also be able to get fellowships or scholarships. Otherwise, it's a lot of money and debt."
About 6.1 percent of CSU, Stanislaus, students who started repaying their federal loans in 2010 defaulted within two years, up from 3.8 percent six years prior, according to the U.S. Department of Education.
The same percentage 6.1 of students from UC Merced defaulted on their loans within two years of starting repayment in 2010. Because UC Merced began offering classes in 2005, similar historical comparisons aren't valid.
At the University of the Pacific in Stockton, 2 percent of students who started repayment on federal loans in 2010 defaulted within two years, up from 0.6 percent in 2006.
Community college loans
But four-year university students aren't the only ones starting to worry. Even community college students are increasingly taking out loans to pay for expenses.
In the Sacramento area, public college students and parents borrowed $315 million from the U.S. government last school year, up from $170 million during the 2006 school year. Almost 3,000 left community colleges with debt in 2010; after graduation, these students defaulted at more than triple the rate of students at four-year public colleges.
"I think it's psychotic," Sierra College financial-aid program manager Linda Williams said, adding that the federal government, not the college, decides whether to issue a loan. "I can't deny them unless it is something glaring."
Modesto Junior College, Columbia College and Merced College do not participate in the federal student loan program, so they did not register any defaults.
The schools have a high percentage of students who receive fee waivers. At MJC, 65 percent receive free tuition, compared with 54 percent statewide. At Merced College, about 70 percent of all students qualify for the waiver.
Higher degrees costly
Angel Aprim, 19, of Modesto has received financial aid and, like many MJC students, did not have to take out a loan to complete her education at the college. But, she said, she plans to transfer to UC Davis to finish her biology degree and expects she might incur some debt there.
Other students, such as 23-year-old Madonna Ebrahimof, paid their own way through MJC, an estimated $580 per semester, according to school officials, without the help of financial aid or loans. Ebrahimof said she probably will have to take out loans to finish her degree when she transfers to UOP next year.
She said that even though the private school tuition is higher, she thinks she can finish her degree faster, making it worth the extra cost.
"It's better to get your classes and get out fast. But I am way worried about debt," she said. "And then what happens if you can't get a job right away when you get out? It stresses me out a lot."
Statewide, public college students at all levels borrowed $3 billion last school year, almost double the amount from six years prior. Quick loan defaults have almost doubled.
California nonprofit private school students drew down $3 billion in debt last year and students at for-profit private schools borrowed $2 billion.
The consequences of defaulting on a loan are severe and tough to escape. Unlike other types of debt, student loans usually can't be discharged through bankruptcy.
"You've got to be dead to get out of these loans," said Ed Emerson, chief of federal policy and programs at the California Student Aid Commission. "The feds don't give up. They can garnish your wages. They can seize your property."
Student loan defaults will continue to rise, several experts said, so long as student fees keep increasing and the economy remains weak.
While none expected college costs to fall anytime soon, several pointed to positive signs the economy is improving, making loan payments easier for graduates.
"We had a record number of employers participating in our most recent career fair," said Anita Kermes, the financial-aid director at CSU, Sacramento.
Federal government officials have taken steps to reduce loan defaults. Some students unable to repay can put off payments, a process called forbearance. Officials have made consolidating several student loans into one loan easier, a process that can often reduce interest rates.
Graduates who default can work out a payment plan with the federal government, though that may result in extra fees.
Emerson, the California Student Aid Commission official, said the federal government may soon tighten restrictions on who can receive aid and which schools can take it. The guiding principle may be, "Don't give money to people with no hope of paying it back, and don't give money to students at diploma mills," he said.
The change might take awhile, though. Williams, the Sierra College official, still sees many students borrowing against a low-paying vocational career while attending college part time.
"The loan system needs reworking, and I think the Department of Education understands that," she said. "I think they are seeing what we are seeing in the field."