A Growing Debt to Society

Young graduates shun nonprofit employers

After George C. Wu graduates this spring from George Washington University Law School, he plans to join the

Asian American Justice Center, a nonprofit organization in Washington that helps poor immigrants get legal help. He will be paid $45,000 per year.

He will also owe $120,000 in student loans.

Like thousands of other young adults who borrowed money for college or graduate school, Mr. Wu, 27, wonders if he will be able to make ends meet. With monthly loan payments of about $1,000, he worries that he will have a hard time covering the expense of living in the nation’s capital. Planning his future is also tricky, he says.

“I’ll be turning 30 soon and I may want to get married, and I don’t know if I’ll be able to afford it,” says Mr. Wu. “I don’t want to make so much that I’m separated from the people I’ll be serving, but I definitely want to be self-sustaining.”

Mr. Wu’s dilemma may represent a particularly extreme scenario — the average graduate student ends up with $45,000 in loans, while undergraduates on average have debts of $18,000. Still, as more and more students rely on loans to pay their tuition bills, many graduates entering the nonprofit work force are confronted not only with the challenge of covering their living expenses and saving for the future, but also with paying for the past as well.

And there’s no end in sight: Changes in student aid in President Bush’s proposed budget for 2007 will probably mean higher interest rates for student borrowers and, in the end, higher loan-repayment bills, say student-aid experts.

Dropping Out

College debts are one reason that many recent graduates are intimidated by the big gap between the starting pay at charities and at businesses. The average entry-level job at a nonprofit group pays 22 percent less than at a for-profit. But it is not just recent graduates who are affected by the pay gap — the disparity affects the nonprofit organizations themselves, say some experts.

“The nonprofit work force is by far the most committed work force in the country, but love for a mission doesn’t get you all the way through a career,” says Paul C. Light, a professor of nonprofit management at New York University. “A lot of people drop out because of debt. It’s weakening the backbone of the sector.”

Heavy student-loan debts are diminishing the effectiveness of groups and possibly helping to create a future leadership vacuum, says David Stern, chief executive of Equal Justice Works, an organization in Washington that encourages law students to take government or nonprofit jobs.

“For nonprofits, it’s hard to recruit workers, hard to retain them — there’s all this churning,” says Mr. Stern. “That churning cuts their level of expertise and their ability to be efficient because of the lack of institutional knowledge.”

Not all nonprofit leaders agree, however, that loan debts are significantly hindering the flow of talented workers to nonprofit groups. But low wages paid to entry-level workers could be depriving charities of employees who come from low-income families, says Jan Masaoka, executive director of CompassPoint Nonprofit Services, a nonprofit organization in San Francisco that provides management training to nonprofit groups.

“People from less than well-to-do backgrounds have fewer choices when they get into the world of work if they have large amounts of student-loan debt,” she says. “It disproportionately affects people with little means and people of color. In effect, it’s limiting the pool of talent we have to draw from.”

The AmeriCorps Option

Loan forgiveness or deferment programs financed by federal and state governments can help ease workers’ debt burdens, but few nonprofit employees are in a position to take advantage of them, because of college and financial obligations or because only certain would-be professionals — most often doctors, lawyers, and teachers — are eligible for them.

Amanda Ballard, who conducted a study on college graduates and their debts for the Building Movement Project, a national organization in New York that focuses on social change and the cultivation of new nonprofit leaders, says that only 3 percent of recent graduates entering the nonprofit work force in 2001 had availed themselves of those programs.

Some recent graduates have gotten help with their debts by starting their nonprofit careers in federal service programs. Camille Williams, now a program assistant at the El Pomar Foundation, in Colorado Springs, deferred repaying $20,000 in student loans by joining AmeriCorps, a service program overseen by the Corporation for National and Community Service, in Washington.

Ms. Williams’s 10-month hitch last year as a grant manager and interviewer for a Denver group that helps women make the transition from welfare to work earned her $4,725 from AmeriCorps toward her loan debt — bringing the total down to nearly $15,000 and lowering her monthly payment to $185.

“It’s made my repayment easier to handle,” says Ms. Williams, 25, who earned a bachelor’s degree in social work in 2003 and now makes $30,000 per year.

The 70,000 members of AmeriCorps and Volunteers in Service to America programs can take either a $1,200 cash sum after one year of service or the education award Ms. Williams opted for. What’s more, volunteers can defer paying their loans while serving, and at the end of their volunteer term, the government will pay the interest that has accrued.

The Peace Corps runs a similar program, and the federal government helps young lawyers at the Legal Services Corporation (which runs Legal Aid). Teachers only have to pay back part of their loans. Congress is now considering a proposal that would excuse up to $17,500 in loans to people who accept jobs teaching math, science, or special education in schools in poor neighborhoods. But the measure does not have a strong chance of passing given lawmakers’ desires to reduce the budget deficit.

At least 43 states offer loan-forgiveness programs for students who promise to go into professions such as medicine, nursing, public-interest law, social work, and teaching. Typically, portions of loans are paid when young professionals accept jobs in regions of the country lacking sufficient doctors, lawyers, or other professionals or if they stay at their jobs for a number of years.

A handful of state bar-association foundations offer loan-repayment assistance for law-school graduates. Several dozen law schools have started loan-repayment-assistance programs for budding lawyers who seek legal work with government or nonprofit groups.

Mr. Stern, from Equal Justice Works, says a study made by his organization found that 68 percent of public-interest employers (which includes nonprofit groups) have a hard time hiring lawyers, and 62 percent report difficulty in retaining them. Less than 5 percent of law-school graduates end up working for nonprofit groups.

With average salaries for public-interest lawyers running at less than $40,000 per year, and with the median debt for law-school graduates running around $108,000, according to a 2003 study conducted by the American Bar Association, loan-forgiveness programs allow young lawyers who otherwise couldn’t afford it to choose public-interest work.

Changes in Public Policy

While young lawyers and teachers can find a bit of government help for starting their careers with less debt, workers at nonprofit organizations that provide advocacy, direct services, and other functions have few places to turn.

Tamara Draut, director of the economic-opportunity program at Demos, a nationwide advocacy and public-policy group in New York, says lack of advocacy on the issue has led to an unquestioned acceptance of what she calls “the debt-for-diploma system” among the public and executives of nonprofit organizations.

The percentage of government grants that make up loan packages has dropped from 60 percent to 40 percent in the past three decades, while the amount of loan debt has skyrocketed along with tuition rates, says Ms. Draut, author of Strapped: Why America’s 20- and 30-Somethings Can’t Get Ahead, published in January by Doubleday. But very few groups have taken note of it or used it as a platform for advocacy campaigns.

“We’ve had a sea change in public policy without much public debate,” she says. “People have to see how this is affecting a whole generation’s ability to live.”

Ms. Draut says the federal government needs to return to handing out more grants to students, while states need to reaffirm their commitment to public education. “We have to cut the head off the monster,” she says. “It wouldn’t hurt for the federal government to look into forgiving the loans of people who do service work and are paid under the median rate for that kind of work.”

Grant makers and wealthy donors should also play a role, Ms. Draut says: “Foundations should provide more general operating support so nonprofits can come closer to paying fairer wages.”

Mr. Light, the New York University professor, agrees. “We’re behind the federal government on this issue — and that’s embarrassing,” he says, adding that he rarely hears conversation about the student-debt issue among nonprofit organizations. “I’ve talked in front of 8,000 nonprofit executives from Charlotte to Seattle, and I’ve yet to find an organization that does loan forgiveness.”

He concedes that budget-strapped organizations might not be in the best shape to start forgiveness programs. But he says that a program backed by philanthropy that would create a pool of money with which to buy loans back and then spin them off with lowered interest rates might be a start.

“It’s up to the donor community and foundations to wake up to this,” says Mr. Light. “They’ve relied for so long on employees — this self-exploiting work force — taking on huge loan risks and low salaries, but that can only go on for so long. Right now, I’m not sure that foundations even see this problem.”

He adds that many nonprofit workers he has talked with spend as much as one-third of their salaries to repay their student loans: “I’d like to see a study of how many of these nonprofit employees rely on food stamps and Medicaid.”

Forgiving Loans

For now, support for loan-forgiveness programs among foundations remains sparse.

A few small foundations have stepped in, but no major grant makers are making such efforts. The Leon Lowenstein Foundation, a family foundation in New York, recently decided to finance a program to help graduate students at the University of Pennsylvania’s Wharton School, in Philadelphia, get help with their loans.

The foundation has offered to provide $2.5-million to encourage business students to work at nonprofit organizations or in government, as long as the institution raises at least that much from other donors.

In December, Wharton paid off some of the loans owed by three graduates who took nonprofit jobs and one who took a government position, according to Thomas Caleel, Wharton’s director of admissions and financial aid. The university provided a total of $25,000, with the largest award of $10,000 going to a graduate with $100,000 in academic debt.

“This gives us the chance to level the playing field for a few students,” says John F. Van Gorder, executive director of the Leon Lowenstein Foundation. He adds that the foundation responded to the Wharton School’s call to increase the number of students who perform public-service work. “We don’t know how it will work,” he adds, “but that’s what’s exciting about being on the cutting edge of philanthropy.”

But even if more loan-forgiveness aid becomes available for students and graduates who are preparing for nonprofit work, it might not be enough to have a major effect on them and their debts, says Lauren J. Asher, associate director of the Institute for College Access and Success, in Berkeley, Calif.

Job availability, the readiness of nonprofit employers to pay out large sums of money for school debt, and stipulations on length of employee service might hinder the effectiveness of such programs, says Ms. Asher.

She says it might be more effective to simply extend the repayment terms for people who take jobs that serve society. “Giving people more flexibility in how loans are paid back would be a big help,” she says.

Tuition Reimbursement

While few nonprofit employers pay attention to the loans that their workers take out before they arrive at the organization, many groups do reimburse employees who seek to advance their education.

Eric Gray, now executive director of the American Lung Association of Florida-Central Area, in Orlando, says he took advantage of such a program to complete his master’s degree in nonprofit management and public policy while working at a public television station in Kentucky.

“It helped me avoid about $10,000 in educational loans,” he says. “I’m of the belief that if there’s any way to avoid student loans, do it.”

Loans have made a huge impact on his family’s finances, he says. Mr. Gray’s wife, Heather, an occupational therapist at United Cerebral Palsy, in Orlando, took out $40,000 in loans as a graduate student. Even though the Grays have been paying down the loan for eight years, they still owe $30,000. Ms. Gray holds two jobs to help pay the loan off.

The couple is considering opening their own business one day, “so we and our two children can get to a place where we can get out from under the loan payments and have the lifestyle we want,” says Mr. Gray.

The need to plan changes in careers, or to supplement incomes, is prevalent among loan recipients, says Keidra D. Chaney, a communications and development associate at a Chicago arts organization that she asked not be identified, who owes $350 a month in student loans — part of the $40,000 she borrowed to get her master’s degree in communications. She says she is considering working as a fund-raising consultant to supplement her salary, which is in the $30,000 to $35,000 range.

“I think about getting my own place in five years, but I don’t see how I can make it,” says Ms. Chaney, 30. “It’s really difficult for people who don’t get support from parents or others to stay in the sector.”

Mr. Wu, the George Washington University law student, says he already has a second job in mind. Although some of his loan — perhaps as much as $2,500 — will be forgiven for each year he works with the Asian American Justice Center, he knows that the amount will fall far short of what he needs.

“My girlfriend and I each got our real-estate licenses,” Mr. Wu says. “I can see that for the next two years we’ll at least get by.”