This Bright-Eyed Young Man Was Utterly Demolished By Student Loans

this bright-eyed young man was utterly demolished by student loansEven as total outstanding student debt rises to $1 trillion, lawmakers have yet to allow loans to be discharged in bankruptcy. Without an escape clause, these loans can strangle a person.

Take 36-year-old Nick Keith, who remains $142,000 eight years after graduating from culinary school. He's featured in a new film, "Default: The Student Loan Documentary," in which several college graduates expose the pitfalls of the private student loan industry.

"I want to educate the public about the facts," Keith told Your Money. "My life has become a daily swim in a tar pit with very little hope of ever getting out."

Without Family Support, Turning to Culinary School

Keith's father only agreed to co-sign a student loan if he stuck with an engineering degree at Iowa State University, but even with decent grades, he knew it wasn't a right fit.

He dropped out sophomore year and later turned to the California Culinary Academy -- without his dad as a safety net -- hoping to put his love for healthy eating to use.

"The culinary academy commercials were on the Food Network every 15 minutes," he said, and only required 12 months of study with a three month externship.

He fell for their sales pitch hook, line and sinker.

"I should have seen all the signs. [The campus tour guide] had a used car salesman answer for everything," Keith recalls. The magic answer was always "99 percent" -- whether Keith asked how many enrolled students graduated or how many graduates scored jobs afterward.

Feeling confident, Keith took out $46,000 in private loans.

He then took out another $14,000 in federal loans to cover his rent, since the school's fees didn't include room and board. But "I was lied to about the terms of the private student loan," Keith says. "And after completing the program, my first job in the culinary field (working on a meal assembly line) paid $10 per hour."

Not the First to Be Duped

In September, the California Culinary Academy agreed to pay $40 million back to thousands of students in a class action suit claiming they were misled about the program. The school allegedly boasted a "48 percent to 100 percent" success rate for graduates looking for work, but students claimed the calculation included jobs that didn't require a culinary education at all.

With just a part-time job, it took Keith three months to make the first loan payment of $1,300.

He was also paying a 19% variable interest rate – nearly triple the capped interest rate on federal unsubsidized loans.

"I spoke to (private loan issuer) Sallie Mae. I wrote to Sallie Mae. But Sallie Mae would not refinance my debt with a reasonable interest rate or reasonable payments," he says. "I could not afford to make a student loan payment because my choice each month was to either pay my rent or make a student loan payment."

Sallie Mae's best offer? A $50 to $100 reduction in his monthly payments.

Bankruptcy Wasn't an Option

No matter how deep borrowers find themselves buried in student loan debt, federal law prevents them from discharging it in bankruptcy court -- unless they can prove "undue hardship."

"Most bankruptcy attorneys do not pursue a discharge of student loans because the undue hardship restriction is such a harsh standard," according to Mark Kantrowitz, publisher of

With no hope of meeting his monthly payments, Keith threw his hands up and basically let the debt collectors have at him.

"They call every day, a couple times a day," he says. "I send their numbers straight to voicemail."

Eventually he stopped making loan payments altogether

Private Colleges With the Lowest Student Graduating Debt
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This Bright-Eyed Young Man Was Utterly Demolished By Student Loans

Location: Princeton, N.J.

Undergraduate Enrollment: 5,220

Total Annual Cost: $50,269

Average Debt at Graduation: $5,225

Students Who Borrow: 23%

Princeton’s no-loan financial aid policy, introduced a decade ago, means that less than one-fourth of students need to borrow, and the amount they do borrow is small. Princeton’s average debt at graduation, at a little over $5,000, is the lowest among our top 200 private colleges.

Location: Berea, Ky. 

Undergraduate Enrollment: 1,613 

Total Annual Cost: $32,894 

Average Debt at Graduation: $5,836 

Students Who Borrow: 73% 

Plenty of colleges talk about keeping costs, and student debt, down, but Berea walks the walk: This Christian-focused institution covers the full $25,500 tuition for all students, out of a mix of grants and scholarships, leaving them to cover only $7,394 in remaining costs (including room and board). It’s no surprise that average debt here is second-lowest on our list.

Location: Williamstown, Mass. 

Undergraduate Enrollment: 2,029 

Total Annual Cost: $55,360 

Average Debt at Graduation: $8,369 

Students Who Borrow: 43% 

With an average financial-aid package of about $40,000 a year, Williams brings the annual cost of its elite education to a relatively modest $15,360 for students who qualify. Williams admits students without considering their financial circumstances and meets the full demonstrated need of students who enroll.

Location: New Haven, Conn. 

Undergraduate Enrollment: 5,294 

Total Annual Cost: $53,700 

Average Debt at Graduation: $9,254 

Students Who Borrow: 28% 

An Ivy League school with a walloping endowment and a financial-aid budget of $117 million, Yale offers no-loan financial aid to more than half its students, including families earning well over $100,000. Result: Students who borrow carry away one-third less debt than the national average for borrowers at private schools.

Location: Claremont, Cal. 

Undergraduate Enrollment: 956 

Total Annual Cost: $55,700 

Average Debt at Graduation: $9,435 

Students Who Borrow: 36% 

This tiny, all-women’s school awards generous need-based and merit-based grants as well as privately funded need-based loans, which do not accrue interest while the student is in school. (Students also have access to federally sponsored loans, such as Staffords.) Scripps is one of the three members of the Claremont Colleges (a consortium of five colleges and two graduate programs that share faculty and facilities) to make our top ten for low debt.

Keith sought advice from a bankruptcy attorney as well as a couple of CPAs on how to handle his loans. Both gave him the same advice: Stop paying.

They reasoned that with so many students in Keith's position, Congress would eventually revamp its personal bankruptcy laws to allow loans to be forgiven.

Nearly a decade since he took out the original loan, his balance has ballooned to $142,000 with a 17% interest rate -- and the law hasn't budged.

And the Blows Just Kept Coming

"Just as I was getting close to getting my financial house in order, I was injured at work and became permanently disabled," Keith says.

Six years later, Keith's only source of income is a $1,200 monthly disability check, going so far as to collect cans and bottles for extra pocket money.

"I get groceries at the local food bank," he said. "I have sold or lost 99 percent of everything I ever owned."
The outlook remains pretty grim.

Keith's expecting about $16,000 from the $40 million CCA settlement in July, but that's only if the school doesn't file another appeal.

In the meantime, his credit score has fallen below 550, he's had trouble securing even auto insurance, and finding work is a struggle–not to mention the fact that none of his CCA credits will transfer if he decides to go back to school.

"Any employer that checks my credit history will surely have to raise questions as to why my credit shows only defaulted or charged-off accounts," he says. "All of my good credit that showed I paid everything in full and on time is now past seven years old and has fallen off my credit report."

For the time being, he's living out of his van.

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Keith camped out in his dad's heated garage for the better part of 2011, hoping he'd be able to either find a job or sell enough of his belongings to afford to move back West for work.

When we caught up with him in late May, Keith said things with his father turned sour and he used the $2,500 or so he raised on hotel stays instead. As of last week, with the rest of his savings dried up, Keith officially joined the ranks of the homeless.

He's living out of an aged minivan, taking advantage of Salvation Army for meals and groceries. At night, he crashes at highway truck stops, where he says he's rarely bothered.

"All that I, and the rest of the folks in this mess, are asking for is that Congress simply return the "Truth in Lending" policies and procedures to all student loans (both federal and private)," he said. "As well as return the ability to discharge student loan debt through bankruptcy."

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