College debt erased

This could be as difficult as selling refrigerators to Eskimos.

"Having to Prove You’re ‘Hopeless’ to Escape College Debt"

by

Ron Lieber

The New York Times

It isn’t easy to stand up in an open courtroom and bear witness to the abject wretchedness of your financial situation, but by the time Doug Wallace Jr. was 31 years old, he didn’t have much left to lose by trying.

Diabetes had rendered him legally blind and unemployed just a few years after graduating from Eastern Kentucky University. He filed for bankruptcy protection and quickly got rid of thousands of dollars of medical and other debt.

But his $89,000 in student loans were another story. Federal bankruptcy law requires those who wish to erase that debt to prove that repaying it will cause an “undue hardship.” And one component of that test is often convincing a federal judge that there is a “certainty of hopelessness” to their financial lives for much of the repayment period.

“It’s like you’re not worth much in society,” Mr. Wallace said.

Nevertheless, Mr. Wallace made his case. And on Wednesday, nearly six years after he first filed for bankruptcy, he may finally get a signal as to whether his situation is sufficiently bleak to merit the cancellation of his loans.

The gantlet he has run so far is so forbidding that a large majority of bankrupt people do not attempt it. Yet for a small number of debtors like Mr. Wallace who persist, some academic research shows there may be a reasonable shot at shedding at least part of their debt. So they try.

Before the mid-1970s, debtors were able to get rid of student loans in bankruptcy court just as they could credit card debt or auto loans. But after scattered reports of new doctors and lawyers filing for bankruptcy and wiping away their student debt, resentful members of Congress changed the law in 1976.

In an effort to protect the taxpayer money that is on the line every time a student or parent signs for a new federal loan, Congress toughened the law again in 1990 and again in 1998. In 2005, for-profit companies that lend money to students persuaded Congress to extend the same rules to their private loans.

But with each change, lawmakers never defined what debtors had to do to prove that their financial hardship was “undue.” Instead, federal bankruptcy judges have spent years struggling to do it themselves.

Most have settled on something called the Brunner test, named after a case that laid out a three-pronged standard for judges to use when determining whether they should discharge someone’s student loan debt. It calls on judges to examine whether debtors have made a good-faith effort to repay their debt by trying to find a job, earning as much as they can and minimizing expenses. Then comes an examination of a debtor’s budget, with an allowance for a “minimal” standard of living that generally does not allow for much beyond basics like food, shelter and health insurance plus some inexpensive recreation.

The third prong, which looks at a debtor’s future prospects during the loan repayment period, has proved to be especially squirm-inducing for bankruptcy judges because it puts them in the prediction business. This has only been complicated by the fact that many federal judicial circuits have established the “certainty of hopelessness” test that Mr. Wallace must pass in Ohio.

Lawyers sometimes joke about the impossibility of getting over this high bar, even as they stand in front of judges. “What I say to the judge is that as long as we’ve got a lottery, there is no certainty of hopelessness,” said William Brewer Jr., a bankruptcy attorney in Raleigh, N.C. “They smile, and then they rule against you.”

Debtors themselves struggle with testifying in their undue hardship cases. Carol Kenner, who spent 18 years working as a federal bankruptcy judge in Massachusetts before becoming a lawyer for the National Consumer Law Center, said that one particular case stuck in her mind.

The debtor had a history of hospitalization for mental illness but testified that she did not suffer from depression at all. “She was so mortified about the desperation of her situation that she was committing perjury on the stand,” Ms. Kenner said. “It just blew me away. That’s the craziness that this system brings us to.”

Debtors also stretch the truth in other directions. In 2008, a federal bankruptcy judge in the Northern District of Georgia expressed barely disguised disgust in deciding a case involving a 32-year-old, Mercedes-driving federal public defender with degrees from Yale and Georgetown. With nearly $114,000 in total household income, the woman’s financial situation was far from hopeless, despite her $172,000 in student loan debt.

No one keeps track of how many people bring undue hardship cases each year, but it appears to be under 1,000, far less than the number of people failing to make their student loan payments. In its most recent snapshot of student loan defaults, the Department of Education reported that among the more than 3.6 million borrowers who entered repayment from Oct. 1, 2008, to Sept. 30, 2009, more than 320,000 had fallen behind in their payments by 360 days or more by the end of September 2010. About 10.3 million students and their parents borrowed money under the federal student loan program during the 2010-11 school year.

One reason so few people try to discharge their debt may be that such cases require an entirely separate legal process from the normal bankruptcy proceeding. In addition, those who may qualify generally lack the money to hire a lawyer or the pluck to file a suit without one.

Nor is the process quick, since the lender or the federal government often appeals when it loses. And even if clients can pay for legal assistance, some lawyers want nothing to do with undue hardship cases. That’s the approach Steven Stanton, a bankruptcy lawyer in Granite City, Ill., settled on after trying to help David Whitener, a visually impaired man who was receiving Social Security disability checks. The judge wasn’t ready to declare him hopeless and gave him a two-year “window of opportunity” to recover from his financial situation, saying he believed that Mr. Whitener had the potential to obtain “meaningful” employment.

Mr. Stanton did not see it that way. “It’s the last one I’ve ever done, because I was just so horrified,” he said. “I didn’t even have the client pay me. In all of the cases in 30 years of bankruptcy work, I came away with about the worst taste in my mouth that I’ve ever had.”

Those who do go to court face the daunting task of arguing against opponents who specialize in beating back the bankrupt.

They will often square off against Educational Credit Management Corporation, a so-called guaranty agency sanctioned by the government to handle a variety of loan-related legal tasks, from certifying students who are eligible for loans to fighting them when they try to discharge the loans in bankruptcy court.

On its Web site, the agency paints a picture of how much of a long shot an undue hardship claim is, noting that people “rarely” succeed in discharging student loan debt.

Some academic researchers have come to a different conclusion, however. Rafael Pardo, a professor at the Emory University School of Law, and Michelle Lacey, a math professor at Tulane University, examined 115 legal filings from the western half of Washington State. They found that 57 percent of bankrupt debtors who initiated an undue hardship adversary proceeding were able to get some or all of their loans discharged.

Jason Iuliano, a Harvard Law School graduate who is now in a Ph.D. program in politics at Princeton, examined 207 proceedings that unfolded across the country. He found that 39 percent received full or partial discharges.

His assessment of E.C.M.C.’s view of the rarity of success? “I think that’s wrong,” he said. While his sample size was small and he agrees that it’s not easy to prove undue hardship and personal hopelessness, his assessment of bankruptcy data suggests that as many as 69,000 more people each year ought to try to make a case. And they don’t necessarily need to pay lawyers to argue for them, as he found no statistical difference between the outcomes of people who hired lawyers and those who represented themselves.

Dan Fisher, E.C.M.C.’s general counsel, said it had no opinion on whether more borrowers should try to make undue hardship claims. As for the “rarely” language on its Web site, he said the company stood by its assertion that it was uncommon for an undue hardship lawsuit to end in a judgment discharging the loans in its portfolio.

Sometimes, getting any judgment is a challenge, as judges may delay a decision if the case seems too close to call or there is a possibility that the facts may change reasonably soon.

Radoje Vujovic, a North Carolina consumer bankruptcy lawyer, for instance, had more than $280,000 in student loan debt and just $23,000 in annual income.

When Judge A. Thomas Small, a federal bankruptcy judge in the eastern district of North Carolina, examined the case in 2008, he decided to wait two years before rendering final judgment, given that Mr. Vujovic thought his law practice might grow. “Must the cost of hope be permanent denial of discharge of debt?” Judge Small asked in his written opinion. “The answer to that question cannot be an unequivocal ‘yes.’ Hope is not enough to end the inquiry and, ironically, permanently tip the scales against a struggling debtor.”

The Department of Education, unhappy with the two-year delay, appealed before the period was up and persuaded a higher court to overturn the ruling. “I would stand by my decision,” Judge Small, who is now retired, said in an interview. “If you’re forced to make that decision, all you have is speculation, and speculation is really not good enough to overcome the burden of proof.”

Getting judges out of the speculation business, however, would require a new law or an entirely new standard, possibly from the United States Supreme Court. Neither appears likely anytime soon.

In the meantime, Doug Wallace, the blind man in Ohio, is nearing the end of his long wait for a ruling.

In December 2010, C. Kathryn Preston, a federal bankruptcy judge in the southern district of Ohio, tried to assess Mr. Wallace’s hopelessness by pointing to expert testimony that blindness does not necessarily lead to an inability to ever work again. But she also noted that because he lived in a rural area, he faced significant transportation obstacles. So she set a new court date for Sept. 5, to give him “additional time to adjust to his situation.”

The question for Mr. Wallace then became what sort of adjustments he was supposed to make aside from a court-ordered $20 monthly loan payment. His routine has not changed much. Aside from hernia surgery a few months ago, his days consist of sitting close to the television (he can just make it out through one eye that still has a bit of vision) and regular trips to the gym with his father. His college diploma hangs on the living room wall, and at night he sleeps underneath it on the couch of the rental house he shares with his father and sister.

Mr. Wallace’s sister, a community college student, is sometimes around during the day while his father works at a Honda factory. There are few visitors. “I’ve got friends around here, I’m sure, but they’ve got lives for themselves,” he said. “So I don’t really bother them.”
The judge did not explicitly order him to move closer to a training center, and his lawyer, Matt Thompson, said that doing so would set him up for certain failure. “I don’t think there is anyplace he could go in central Ohio and live on $840 a month,” he said.

Logistics aside, Mr. Wallace said that it was hard to imagine his overall situation ever improving and wonders who would hire a blind man in this economic environment.

“Do I think I’m hopeless?” he said. “Well, yeah, I mean by looking at it you would think I am hopeless. Like it won’t get better for me.”

16 tons and what do you get...just deeper in debt

"NYU Students: Debt and Debtor"

NYU is number one in student debt. But is it really worth it?

by

Nick Pinto

November 9th, 2011

The Village Voice

Walking around Greenwich Village, it's easy to find reinforcement for the popular stereotype of New York University as a rich-kid school. On a fall evening, the bars and restaurants near the campus can feel completely overrun with a swarming mass of fashionably dressed students splashing out on Mom and Dad's credit card, apparently heedless of the recession and living the downtown dream.

Lyndsey always resented that stereotype. That's not to say she doesn't acknowledge some truth to it, but she knew it didn't apply to her. Like so many undergraduates, she came to NYU because it was her dream school, but it wasn't a dream she came by easily. Lyndsey financed her NYU education in large part with loans, which she is now paying back a little at a time.

When Lyndsey is done paying them, she will be 54 years old, and she will have spent more than a third of a million dollars on her undergraduate education.

During her college years, as it became clear to Lyndsey just how deep in the hole her education was going to put her, she dialed back her living expenses to a bare-bones survival budget. She moved out of the overpriced university dorm and into a tiny apartment off campus, dropped out of the meal plan, and put herself on a strict $20-a-week regimen for food and entertainment.

"I joined clubs just because they had food at the meetings," Lyndsey says. "I knew all the popular meeting places, and I always had tinfoil and plastic bags with me to snatch up anything on the table. If I came across a leftover pizza, I'd take the whole thing and put it in my bag. When I did buy groceries, it was in Chinatown, and I'd haggle for everything. I'd buy things that I didn't even know what they were, just because they were cheap."

Upon graduation, it became obvious to Lyndsey that what she wanted to do with her life—why she'd gone to NYU and into debt—wasn't going to pay the bills as her loans started coming due.

"My dream career was to be a cinematographer on films about nature, to be involved with shaping how the public perceives nature and our relation to it," Lyndsey says. "It became clear that that wasn't going to pay nearly enough. I had a six-month grace period after graduation to get a job and start paying back those loans, so I got work that paid better in a field completely different from why I wanted to go to school in the first place."

And so began a blurred, twilight existence that has lasted years for Lyndsey. She works nine-to-five in a surgical-simulation lab at a medical school, then rushes home to immediately start her other job, working until 10:30 as tech support for a company in California.

"It's pretty murderous," Lyndsey says. "There's no time in my day to think, to breathe, to eat, to shop for groceries. Weekends I try to catch up on laundry, get groceries, cook as much as possible, and see my friends if I can."

Still, the punishing work schedule was better than the alternatives Lyndsey sometimes considered. "I'm basically trying to avoid the more extreme ways of doing it: stripping and prostitution," she says. "Stuff you can't tell your parents and your friends about."

Working 70 hours a week, Lyndsey was able to stay on top of her $1,232 monthly loan repayment and even put a little aside. But it wasn't sustainable: She was chronically exhausted, her relationships were suffering, and she was miserable. Earlier this year, her boyfriend moved out, and she found herself scrambling to make rent by placing a rotating series of Craigslist roommates on the couch of her one-bedroom apartment in South Williamsburg.

Now the possibility of getting behind on her loans, or even defaulting, seems perilously close. But there's no way out. Bankruptcy wouldn't clear her obligations, and if she falls behind, the bank wouldn't just come after her, but also after her mother, who took on much of the debt. Their salaries could be garnished and so could her mother's Social Security benefits.

Lyndsey doesn't want to use her full name in this story. She's worried that if she ever does default on her loans, her comments might be used against her in court. Worse yet, she says, they could be used against her mother.

But even trapped in this untenable situation, when she's asked if she wishes she hadn't gone to NYU in the first place, Lyndsey doesn't have a simple answer. She's angry at NYU, feels used and misled by the school, sure. Yet she's got nothing but good things to say about the schooling she received.

"Would I want a different education? I have to say, the education I got was pretty great," Lyndsey says. "I got to know this city that I love. And going to NYU has made people look at my résumé that wouldn't have if I went to UMass Amherst. Do I wish I hadn't gone to NYU at all? It's not that easy."

In the clutches of the great recession, after the home-borrowing bubble burst, the education-borrowing bubble lives on. Teenagers continue to borrow tens and hundreds of thousands of dollars to finance their educations, even as they increasingly find there aren't jobs waiting for them on the other side. Down in Zuccotti Park, Occupy Wall Street protesters are talking about demanding student-loan forgiveness.

In some respects, NYU is the poster child for the excesses of 21st-century student debt in America. Although most NYU undergraduates haven't borrowed as much as Lyndsey (who owes $165,000 and will end up paying $350,000 because of interest), the average student is still a whopping $35,000 in debt when they graduate, a figure $11,000 higher than the national average. In fact, NYU creates more student debt than any other nonprofit college or university in the country. The only schools putting students into more debt are the kind of for-profit diploma mills currently being investigated by the United States Senate.

But at the same time, NYU's status as an iconic and prolific generator of student debt is an awkward fit with the populist outrage of national education funding activists and Occupy Wall Street protesters. Prospective NYU students have less-expensive options, and NYU isn't exactly positioning itself as an affordable institution for the masses. In fact, its tuition is so high and its financial aid so low precisely because the university is on a multi-decade spending spree, attempting to launch itself into the highest tiers of elite universities with a state-of-the-art campus and top-notch faculty.

That sort of aspirational spending—the idea that, as former NYU president L. Jay Oliva once said, "There's no way to get excellence, other than buying your way into it"—is, of course, only the institutional mirror of the aspirational spending NYU's students are doing when they pay their tuition bills. For many, the belief that a diploma from a prestigious school like NYU can catapult a student into a higher socioeconomic register makes NYU's staggering tuition seem worth it.

There is a significant difference between these double strands of big dreams and lavish spending, though: NYU is financing its dreams with student tuition. The students are financing theirs with enormous loans that can weigh on them and limit their options for decades to come.

Why does NYU put its students in so much debt? Some of the answers are obvious and come quickly to the tongue of university spokesmen when asked the familiar question: NYU is in the heart of New York City, one of the most expensive real estate markets in the world. Everything is more expensive here, from buildings to salaries to food and laundry.

School officials also point to the school's relatively meager endowment. At $2.5 billion, NYU's endowment sounds like a lot until you start comparing it with those of the big-name schools with which NYU competes: Five miles uptown, Columbia has $7.8 billion. Yale has almost $20 billion. Harvard has $32 billion.

Schools like these can use the interest accrued by their massive endowments to help cover their costs, lessening their reliance on tuition and increasing the generosity of their financial aid. Princeton funds nearly half of its operating budget with its endowment. At NYU, the figure is 5 percent.

But while NYU pleads poverty to its students, it's worth understanding why its endowment is so small. For one thing, NYU hasn't been around collecting compound interest for as long as some of its ivy-covered brethren. It was founded in 1831, nearly 200 years after Harvard. And for much of its history, NYU wasn't exactly serving the sort of old-money elites and future captains of industry that could be counted on to give generously to their alma mater.

For most of the past century, NYU was a modest regional commuter school. Most of its operations were in the Bronx, in a spacious, conventional campus in University Heights. But faced with a financial crisis in the early 1970s, the school's board of directors began implementing a sort of moon-shot effort to save the school. If the challenge was to go big or go home, NYU was going to go big.

It sold the Bronx campus, now home to Bronx Community College, and rebranded itself as the school in the heart of downtown. President John Brademas launched a billion-dollar fundraising campaign. But contrary to conventional doctrine, NYU socked little of the money away, instead going on a spending spree, expanding the university's Greenwich Village footprint, and upgrading its existing facilities.

Longtime residents fought back against this construction boom and the institutionalization of their neighborhood, but though the resistance to NYU's ongoing expansion is still noisy, in decades of struggle, they have had little success in reining in the NYU juggernaut.

The development was mostly for dorms and academic buildings, but NYU's holdings also include a lot of swanky faculty housing, which, combined with a generous war chest, have helped to lure big-name professors who would never have considered NYU 30 years ago.

The spending spree struck many at other universities as risky and dangerous. Spending so much and saving so little allowed NYU to grow rapidly in size and stature, but it left the school with little to fall back on in hard times and placed an outsize share of the burden of running the school on the backs of students.

Still, by most measures, the strategy was an unqualified success. Forty years after its near bankruptcy, NYU's Hail Mary transformation is complete. The Bronx now far behind, the school is firmly entrenched in the Village, with 15 million square feet citywide. It has a world-class faculty and now competes for some of the best students in the world.

But the school isn't stopping its spendthrift strategy. It's not even slowing down. If anything, NYU's metastatic expansion is only speeding up. Last year, the school announced plans to grow its space by another 40 percent, further saturating the Village and expanding into Brooklyn and Governors Island. And the school isn't confining itself to New York City. Last year, it opened NYU Abu Dhabi, a sort of clone of itself in the United Arab Emirates. In 2013, the school plans to do it again, this time in China. These global forays are for the most part funded by their host countries, but many students see this relentless focus on growth as coming at their expense.

NYU's thirst for money to fuel its rocket ride to the top has certainly led it to some unsavory places. In 2007, then-attorney general Andrew Cuomo busted the school for a kickback scheme involving student loans. When students were accepted to NYU, the school would direct them to Citibank as its "preferred lender" for all private loans. In return, Citi would kick back a percentage of its loans to the school. NYU's take amounted to $1.4 million over five years.

Citi did offer lower rates than the seven other institutions that vied to be NYU's preferred lender, and NYU says the money was plowed back into student aid anyway. But the relationship was still unsettlingly cozy.

Lyndsey, the alumna who will have paid $350,000 for her NYU education, went to Citibank for her private loans because NYU directed her there. When she was accepted in 2003, she was ecstatic. That enthusiasm dimmed somewhat when she saw the meager financial aid package NYU was offering her. If she wanted to attend her dream school, she'd be paying for 90 percent of it with loans.

Despite living in a swanky suburb northwest of Boston, Lyndsey's parents were hardly wealthy. Her mother ran a café, where Lyndsey often helped out. Her father worked in sales for the telecom industry but had lost his job, and the past few years had been difficult. Lyndsey's mother had never gone to college. Her father is English, and had no familiarity with the American university system.

"We relied on the University to help explain it to us," Lyndsey says. "We didn't take it lying down. We called financial aid to ask what was up. They told us that NYU has a fairly high dropout rate, so to protect themselves, they don't offer a lot of financial aid the first semester, but we could expect the financial aid to increase in future semesters."

With that reassurance, Lyndsey and her mother inked promissory notes to Citibank. But when the second semester started, Lyndsey's financial aid didn't change. The next year, tuition went up, and her aid actually went down.

"The relationship with Citi just shows how little incentive NYU had to limit their tuition or offer me better financial aid," Lyndsey says. "They were getting my $40,000 in tuition plus a 15 percent kickback for everything I borrowed. Everybody was winning: NYU was getting paid; the bank was getting a guaranteed revenue stream of 8.5 percent interest guaranteed by the government. Everyone was winning but me."

The feeling that her education financing had turned her into an indentured servant made Lyndsey political. Her activities have connected her with a network of other NYU students and alumni saddled with crushing debt and looking to do something about it. A Facebook group she runs called "The $100,000 Club" for students with six figures of debt has more than 60 members. Some students have staged publicity-ready actions like storming into the NYU bursar's office and attempting to exchange their diplomas for a full refund.

In 2009, the "Take Back NYU" occupation of the school's student center was motivated in no small part by frustration at ever-increasing tuition and the administration's refusal to reveal meaningful details about how it spends its money. But these were larded up with nearly a dozen other demands, including opening the school library to all and offering 13 scholarships to Palestinian students. By the time the occupation ended, it had become caricatured in the media as an unfocused tantrum by privileged kids.

Last winter, the NYU debt protest movement got another shot in the arm as MTV's Andrew Jenks used NYU as the backdrop to his "Casualties of Debt" demonstration. On a cold February day, Jenks organized students in Washington Square to don Anonymous-style masks and T-shirts emblazoned with their amount of debt.

The event was long on theatricality, but Jenks wasn't exactly a terrific spokesman for the movement. When MSNBC's Dylan Ratigan asked him what the masks were all about, he said, "We're all wearing masks to show that as a whole, right now, we may not be doing enough, and we sort of have these blank faces, and we're looking around, and we're not sure what to do."

A more cogent perspective came from Charlie Eisenhood, then an NYU senior and the editor of school's unofficial newspaper, NYU Local.

"When you think about it, people trying to make a financial decision that's going to affect the next two decades of their life when they're 17 and 18 years old is crazy," Eisenhood told Ratigan. "A lot of the time, they don't understand what they're getting into, and it's really up to the universities and Congress to make sure that the banks and the universities are focused on making sure these young students are making financial decisions that aren't going to leave them penniless when they're 25 and 30 years old."

Talking to the Voice this fall from Abu Dhabi, where he is working for NYU, Eisenhood elaborated: "It seems to me that the libertarians are off-base when they say, 'Well, they're adults, they should know better,'" he says. "There needs to be more information from universities and the government and even from banks—you know, 'Are you sure you want to take on this debt to get this degree? It's not free. It seems free now, maybe, but you're going to have to pay it back.'"

That call, for NYU to take more responsibility for educating prospective students about the realities of debt, is actually one that the university has heeded to some extent.

In 2009, NYU called more than 1,800 of 7,300 accepted students whose scholarship packages wouldn't come close to covering their tuition and asked if they were really sure that going to NYU was such a good idea.

But that gesture generated its own backlash. Some students who received the calls told the press they found them discriminatory, and an editorial in the student-run Washington Square News worried the calls would discourage lower-income students from enrolling. "If promising and motivated students choose not to attend, and any student able to pay the bill fills their spot, NYU risks undermining both its prestige and its socioeconomic diversity," the piece stated. "NYU must turn inward and ask itself which quality it values more in its students: motivation, or financial solubility?"

In this instance at least, NYU found itself damned either way. If it made it easy for students to finance their educations with massive loans, it was guilty of economic exploitation and collusion with banks to create a generation of highly educated wage slaves. If it took steps to counsel students about the real consequences of those loans, it was shutting the door to a transformative opportunity to the people who could most benefit from it.

As much as students and activists blamed the university for greasing the wheels on their precipitous roller-coaster dive into crippling debt, many were profoundly uncomfortable with the idea of the university doing anything that would limit enrollment to students who could put cash down on the spot.

Zac Bissonnette, a UMass graduate who wrote Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents, was unimpressed by what he saw as an ineffective infantilism in the NYU debt protests.

"Protesting the amount of money you decided to borrow in order to go to NYU is sort of like moving to New England in the middle of January and then holding signs protesting the cold temperatures and abundant snow," Bissonnette wrote on Daily Finance. "NYU students have a legitimate concern—the amount of money that they're borrowing is insane—and the way that they should handle it is to vote with their feet. Transfer to another school. Deprive NYU of its source of revenue and save yourself in the process. But voluntarily borrowing huge amounts of money to give it to a school while simultaneously shaking your fist at it doesn't help anyone."

Bissonnette's critique is a striking one, because it brings home what makes NYU's debt debate different from the national one. If states are gutting funding for public universities, as they are, that has profound implications for access to education in this country. If a burgeoning industry of for-profit schools is going to extraordinary lengths to put those most in need of education into massive debt for often worthless degrees, that's criminal.

But if NYU thinks it can fund its ascent to the top tier of universities by charging massive tuition and offering minimal student aid, it's not as though prospective students don't have other options. Schools with even better reputations than NYU have more generous aid packages, and there are literally scores of other colleges that offer "the New York experience" where you won't have to put your life in hock for a diploma. Yet last year, 42,242 students applied to the school—the largest applicant pool ever. What gives?

Talking to undergraduates and recent alumni, it seems the answer has a lot to do with youthful optimism and with a vision of their lives that extends through their happy days of schooling in the great metropolis but perhaps not much further.

"Students go to NYU because it's in New York City," Eisenhood says. "When I applied, they had a question on their application: 'Other than living in New York, why do you want to attend NYU?' And I was like, wow, that's actually really hard. I forget what I said—'Great research opportunities,' or something, but I didn't really believe it."

But as much as NYU sells itself on its location, it has some strong programs to recommend it. The university's Stern School of Business is ranked number five among undergraduate business programs by U.S. News & World Report, and students can reasonably expect that between their degree and some well-chosen internships at New York firms, they will be well-poised for a career that will allow them to easily pay back any debt they take on.

Other NYU programs, if equally well-regarded, can't promise the same financial return on investment, but that doesn't stop students from signing on for the ride. Ryan Hamelin, in his last semester of a film and television major at NYU's Tisch School of the Arts, has borrowed roughly $24,000 per semester to finance his education but feels confident he'll be able to make the $1,000 monthly payments when he graduates. He's pulling together his portfolio in the hopes of getting some directing gigs. If that doesn't work out, he plans to fall back on crewing for shoots across the city, something he has already done a bit of.

Early last semester, the reality of his financial situation—even for graduates of the celebrated Tisch program, the jackpot of a directorial gig right out of college is rare—finally sank in. "I was thinking, 'Shit, why did I do this?'" Hamelin says. "I was having anxiety attacks about it."

Now, with a few months to go before his first payments come due, Hamelin is more reconciled to where his path has taken him. "Once this kicks in, I don't see myself being able to do the things I want to be doing for a number of years, which is really a drag," he says. "But that's what you get when you go to NYU: You get NYU, and you get paying for NYU. I'm not going to go down to Wall Street and yell and scream and hope that will make my debt go away."

Lyndsey says she isn't wishing for her debt to go away. "I never want to not pay for what I got," she says. But there are government actions that would make her life easier without giving her a free ride.

"Even changing the interest rate on the PLUS Loans to 3 percent would cut my repayment time in half," Lyndsey says. "Or give us the right to refinance. Banks are borrowing money for free right now, and students are locked in to paying banks back at 8 percent or more."

Since she graduated, Lyndsey has paid back about $40,000 of her loan. But because her loans carry 8.5 percent interest with no chance of refinancing, that $40,000 has put only a tiny dent in her actual balance.

"Do I wish I had been more savvy about how financial aid worked? Of course I do," Lyndsey says. "I'm now guaranteed locked into the system for the rest of my working life to make money for Citibank."

And sure, sometimes Lyndsey fantasizes about what would have happened if she hadn't gone to NYU or to college at all, if she had instead spent her money on high-end film equipment and made the kind of documentaries she had in mind when she enrolled at the university.

But like many NYU students mired in debt, she doesn't think that should be the only choice—between an NYU education and a lifetime of debt or forgoing the university entirely.

"There are so many people with so much potential, and they're going to school because they have visions of what they want to do and be and accomplish and contribute to the world," Lyndsey says. "And because of the way we're doing things now, they get locked down, and they have to pay these bills, and they don't get to follow through. And that's a waste."