$339K in Debt for 2 Daughters

Admissions and financial aid experts have been increasingly worried in recent years that horror stories about debt could discourage low-income students from applying to college at all. And many of those horror stories suggest that one needs to borrow in the six figures to afford college. There was a New York Times series in 2012, for example, that led with a woman who borrowed $120,000 to earn a bachelor's degree.

Today the average student loan debt to earn a four-year degree is about $28,000 -- not insignificant by any means, but not close to six figures. And that's why many student aid experts were stunned Wednesday to read how Martin O'Malley, the former Maryland governor who is seeking the Democratic presidential nomination, explained his commitment to creating a debt-free college option for students and families.

In an interview with The Washington Post, O'Malley said that he and his wife had taken out nine loans, with a total value of $339,200, to pay tuition for their two daughters to each earn an undergraduate degree, the oldest from Georgetown University (a private institution) and her younger sister from the College of Charleston, a public institution in South Carolina.

Grace O'Malley, the Georgetown grad, sent out an email as part of the campaign in which she described how, at 18, she faced a difficult choice: "Do I go to the college we can afford or do I take out loans to go to the college of my dreams? At the age of 18, I made the decision to follow my dreams. My family and I now face years of debt -- and we know we're not the only ones."

To experts on financial aid, the O'Malleys' personal financing plan made little sense -- and some questioned using an outlier example to draw attention to the very real issues of student debt. Many others on social media and elsewhere said that the O'Malley example pointed to the dangers of politicians trying to use their personal situations to illustrate issues on which they are in fact far more fortunate than most. Maryland pays its governor $150,000, and O'Malley's wife has earned similar salaries as a state judge. In other words, many said, they are not who the college debt problem is primarily about.

"It's always a concern that a single individual with an abnormally high level of debt is used to generalize about participation in higher education," said Terry W. Hartle, senior vice president for government and public affairs of the American Council on Education. He did a back-of-the-envelope estimate that without any financial aid or residency change, the Georgetown degree might have cost $240,000 and the Charleston one $120,000 -- covering everything.

"It appears that the O'Malley family elected to borrow enough money to finance the total cost of the education of their children," Hartle said, and that's unusual. "Most upper-income families save before their kids go."

"He borrowed an exceptionally large amount of money," Hartle said, when there were many options -- saving, going to less expensive colleges and so forth. "They made a choice to pursue a very high-priced education," Hartle said. "That's one of the glories of American higher education -- you can make those choices."

Just how atypical was the O'Malley borrowing?

Mark Kantrowitz, senior vice president and publisher at Edvisors and a leading number cruncher on student aid and loans, ran the numbers: "Nine federal parent PLUS loans totaling $339,200 works out to be $37,689 per loan. That is greater than the federal parent PLUS loan amount borrowed by 99.9 percent of parents." (While O'Malley campaign staffers declined to say how the governor borrowed so much, it is assumed it had to be through PLUS loans.)

‎Justin Draeger, president of the National Association of Student Financial Aid Administrators, said via email: "There are two big issues I’ve seen when people try to develop public policy from the extremes: first, we end up with great talking points and political rhetoric, but without any viable, realistic plan to get to the end goal, or (2) we end up creating programs that focus on the wrong demographic. Maybe what we should take from Governor O’Malley’s experience is asking whether there should be better safeguards in place to prevent parents from going $335,000 in debt!"

The O'Malley plan itself would take five years to carry out, but immediately he would create new loan refinancing options and limit monthly repayments based on income. Longer term, he would reduce the need for borrowing by calling on states to freeze public tuition rates, while creating new state-federal spending programs to add funds to public college budgets. O'Malley's plan calls for bringing four-year public tuition levels down to 10 percent of median income in a state (5 percent for community colleges). He says that the tuition rates are more than 20 percent of median income in 10 states.

Other parts of the plan would increase the value of Pell Grants and support efforts to speed up time to completion. While some provisions (such as loan refinancing) would help students with debt from public or private colleges, the plan contains no provisions that would change the costs of attending Grace O'Malley's "dream" college or her sister's out-of-state institution.

Sandy Baum, a senior fellow at the Urban Institute and an expert on college costs, said that one of the issues raised by the O'Malley plan was that while his example was based on a daughter wanting to go to Georgetown, "there's nothing there for those who want to go to Georgetown."

Baum said that from any financial perspective, the O'Malley borrowing "makes no sense. It just means they are very poor financial planners." And she said that with good advice, "no one should borrow money that way."

"There are such big problems in student debt," she said, but a couple with six-figure incomes borrowing in excess of $300,000 "isn't one of them."

Baum has had several discussions with the Hillary Clinton campaign (which is expected this month to release a plan dealing with paying for college), but she said she was not formally advising the campaign.

The O'Malley campaign did not respond to detailed questions about why the O'Malleys borrowed so much, except to release a statement from the candidate: “My wife and I took out big loans to support our daughters. For us, this is what the American Dream is all about -- working hard and making sacrifices so our kids can pursue bigger opportunities and do better than we did."

As to whether his borrowing reflects the debt problems facing many American families, a spokesperson said via email: "He can relate to what so [many] families are going through because of [his] own experience taking out loans for his daughters."