Not alone with loan debt: LSS offers student loan debt counseling

Lutheran Social Service is now offering a lifeboat for recent graduates feeling like they're drowning in student loan debt. Becky Pakarinen, financial counseling director at LSS's Brainerd office, said managing student loan debt is extremely impo...

One of the worst situations Eastman has dealt with so far concerned a man who had taken out all private loans for his education and now owed $1,200 per month in payments. Because of his debt, he's living at his parent's house. Illustration

Lutheran Social Service is now offering a lifeboat for recent graduates feeling like they're drowning in student loan debt.

Becky Pakarinen, financial counseling director at LSS's Brainerd office, said managing student loan debt is extremely important and mismanaging it can have long-term impacts.

"If you're not sure what your student loan payments are, you're going to fall behind on your mortgage, your rent and your car payment," Pakarinen said. "Not to mention the stress."

If you don't manage student loan debt, it can have a negative effect on an individual's credit score, just like credit card debt, said Katie Eastman, financial counselor at the LSS office in Brainerd. The government can garnish wages and bank account to pay back debt, she said, which means less money to cover other expenses.

"Everything gets taken from you that you're relying on, that's a huge hit," Eastman said. "And you don't get notified ahead of time."


How it started

When the housing market bubble burst, the Great Recession followed, Pakarinen said. Now, the student loan debt bubble has become the next big bubble, she said.

To prevent the bubble from bursting, the Minnesota Office of Higher Education provided a two-year grant to LSS Financial Counseling to provide student loan repayment counseling to residents, Pakarinen said. The funding received bipartisan support from the state Legislature.

"So we're working with them, providing them with all the data for it," Pakarinen said. "And we're really doing the outreach because we have the capacity to serve the people and the need is great."

The program offers free guidance to residents who are repaying federal, state and/or private student loans and is aimed at reducing default rates, improving credit scores and overall financial literacy. The grant funding covers those who are 30-60 days late on their payments, are residents of Minnesota and took out their loans in Minnesota, Pakarinen said.

"But we're saying, 'Everybody, come see us, we'll figure out a way,'" Pakarinen said. "We want to make sure we help everybody, not just that specific group."

Katie Eastman worked as a loan officer for four years and at a credit union before that. Working in that aspect of the financial world means she knows what creditors are looking for from debtors, she said.

"I've kind of got that been there, done that type of experience," Eastman said. "It's nice to have both sides of it."


According to information from LSS, Minnesota ranks fifth in the United States for student debt and more than 15,000 students defaulted on their federal student loans in 2012. Pakarinen said in a way, it's a good sign because it means a lot of people are going onto higher education.

"A lot of people are going to school," Pakarinen said. "But a lot of people are also getting into trouble when they get out of school."

How they help

Counselors are trying to be proactive and educate students, Pakarinen said, because it's easy to take the loans out to go to school. But once students leave school, then things get complicated.

"We help them make an informed decision, because you can only consolidate one time," Pakarinen said.

The LSS counseling is holistic, in that counselors consider all the expenses someone might have, not just student loan payments, Pakarinen said.

"How can we get a plan to cover everything?" Pakarinen said.

The two biggest debts Eastman sees when she counsels someone are student loan and credit card debt, she said.


"Either they have student loan debt or they have credit card debt or they have both," Eastman

said. "And they're trying to regain control."

The financial counselors at LSS are well-trained in budget analysis, and have been doing a lot of training focused on student loans, Pakarinen said, and they're all certified through the National Foundation for Credit Counseling. Services are available via in-person counseling, over the phone, or via Skype. Visit for more information or call 1-888-577-2227.

Most people were never taught basic budgeting skills, Pakarinen said, so it's foreign to a lot of people. On the flip side, someone may understand budgeting but their income isn't covering all of their payments.

"We meet people where they're at and help them get going in the right direction," Pakarinen said.

How it works

Her counseling essentially boils down to teaching basic budgeting skills, Eastman said. The first thing she does with each client is make a budget incorporating their income and expenses. They determine someone's basic living expenses and if they aren't bringing in enough to cover their expenses, they look at what can change in the budget.

"What kind of changes can you make in your budget so that you have more money to pay your debts?" Eastman said.


The counseling process goes like this, Pakarinen said:

• Someone makes an appointment for counseling, either in person or over the phone.

• Counselors help them obtain their student loan report to find out what they owe, and to what servicers.

• Counselors usually obtain a credit report, to see what other debt someone might have.

• Then, counselors work with the person to develop a plan and lay out all their option for them.

Counselors will make a recommendation and an action plan, but ultimately, the decision on what to do lies with the person seeking help, Pakarinen said.

"No pressure, it's all up to whatever makes sense to them," Pakarinen said.

Common problems


The biggest issue people have with managing their student loan debt is not even knowing where to start, Eastman said. When their post-graduation six-month grace period ends and they have to start making payments, many people are overwhelmed by the options, she said.

Some people aren't aware they can change their payment options if their initial payment is too high to manage, Eastman said. Sadly, if they start falling behind on payments, there's no relief if they decide to stop making payments.

"Federal loans can garnish wages and bank accounts and all that kind of stuff without notifying you first, because they're a federal debt," Eastman said.

One of the more common mistakes borrowers make is not realizing they can only consolidate their loans once, Pakarinen said. Consolidation can turn federal loans over to a private servicer, which offers less repayment options.

"They're not as easy to work with as government loans are," Pakarinen said. "Government loans have quite a big variety."

Another common mistake borrowers make is not communicating with their loan servicers, Pakarinen said. They may fall behind on their payments and be afraid to call them, but it's the right decision.

"They're overwhelmed, they don't understand what their options are," Pakarinen said.

Student loans aren't like other debt that get wiped away by declaring bankruptcy, Pakarinen said.


"You're stuck with student loans and taxes for life," Pakarinen said.

Emotions play a huge role in managing your personal finances, Eastman said. Many people who seek financial counseling, their life has fallen apart, she said. Creditors are demanding money and debtors have nothing to give.

"We sit down and we say, 'OK, we need to focus on the important things first,'" Eastman said. "Keeping the roof over your head, food on the table."

It can be confusing when someone takes loans out with one organization and their debt is serviced by a different organization, Eastman said. Different types of loans have different repayment options, which can also get confusing.

Unfortunately, there's many scams out there that take advantage of people struggling with their student loan debt, Eastman said. Many of them charge people a fee to do things they can all do themselves for free, she said.

"Don't ever pay anybody to do that for you," Eastman said.

Worst-case scenarios

One of the worst situations Eastman has dealt with so far concerned a man who had taken out all private loans for his education and now owed $1,200 per month in payments. Because of his debt, he's living at his parent's house.

"I mean, I almost wanted to cry for him," Eastman said. "Because the options are so limited at that point."

She still sat down with him and showed him his options, whether they were pretty or not, she said.

"Here's what you have to choose from and you need to decide how you want to proceed with the rest of your life," Eastman said. "It's really just giving them the options, obviously we can't say 'Do this, do that.'"

A woman Eastman recently met with was in complete default on all of her loans and now needed to regain control. She wants to improve her credit score, Eastman said, so she helped her consolidate them, which gets them out of default and in a place where she can start making affordable payments again.

First-hand experience

Erika Kuikka attended St. Cloud State University from 2010-2013, studying early childhood education. A nontraditional student, she's taken a break since 2013 because she had a daughter, so she hasn't gotten her degree yet.

Initially, Kuikka went to college for a semester after high school, but she said she didn't focus so she left. Now 42, her kids are older and it seemed like a good time to return to school, she said.

She hasn't formally worked in early childhood education but working at a daycare in the past, combined with raising her five children and two stepchildren has given her an interest in the subject.

Kuikka had two phone consultation sessions with Eastman in November after having the service recommended to her from the LSS office in St. Cloud, where she lives with her husband Todd. She had been receiving home budgeting counseling from the St. Cloud office, and the counselor there said Kuikka should call Eastman after seeing she had student loan debt.

"I had kind of been burying my head in the sand ever since 2013," Kuikka said. "Going, 'Oh my gosh, these are so insurmountable.' You just get paralyzed with that overwhelmingly large figure."

Kuikka took out federal student loans and they helped pay for the bulk of her tuition. Since she's started making payments on her debt, the average monthly payment has been about $800, she said.

With Eastman's help, Kuikka went through a federal loan website to help find which payment plan would work best for her. Eastman told Kuikka the differences between the payment plans, which helped her make the right decision.

"I was just trying to avoid it, and they were pretty close to default," Kuikka said. "So she had immaculate timing."

Now, Kuikka is back on the right track, which is wonderful, she said. She couldn't believe how easy it was to handle when she had someone there to walk her through it.

"I got off the phone with her and I felt about 10 pounds lighter in my chest," Kuikka said.

Before talking with Eastman, Kuikka said her student loan debt was one of the biggest stressors in her life. It seemed insurmountable, she said, but step by step, she was able to get her debt under control.

"It took maybe an hour or so," Kuikka said. "It really wasn't that hard and I couldn't believe that I had put it off that long."

The bigger issue

What's most shocking about the student loan debt issue is how high the cost of higher education is, Pakarinen said. Students are leaving school with four-year degrees and $60,000-$80,000 in debt, she said. Unfortunately, the entry-level jobs for those degrees don't pay enough to meet the minimum loan payment.

"A lot of people that are coming in, their student loan payment is higher than their rent," Pakarinen said. "What do you do? Your hands are tied."

The overall student loan debt picture is scary, Eastman said, but much of that fear can be assauged by educating the people who are taking out the loans. They should be told the difference between federal and private loans, she said, and other things to watch out for.

National figures

In June of 2014, The Economist reported U.S. student loan debt exceeded $1.2 trillion, with more than seven million debtors in default.

A FICO debt analysis of consumers with at least one open student loan, published in September of 2012, found with education costs rapidly outpacing inflation, more consumers are taking out student loans to pay for their education.

The study found 6.2 percent of U.S. consumers had two or more open student loans on their credit report in 2005. By 2012, that number grew to roughly 11.8 percent.

Consumers also have a greater amount of student loan debt today. In 2005, consumers with an open student loan on file had an average student loan debt of $17,233. In 2012, that number increased 54 percent to $26,530 and has outpaced growth for other types of debt.

Still, the analysis found consumers can have good credit scores despite having high student loan balances. Approximately 7 percent of consumers with at least $50,000 of student loan debt have FICO scores in the 800s.

Early response

Since the program started in October, Pakarinen said the office has seen about three to four people in-person per week, which isn't as much traffic as they'd like. The office has the capacity to see a lot more than that, she said, so they're trying to get the word out about the free service as much as possible.

On average, Eastman has seen one person per day for student loan debt counseling since the program began in October. There's no requirements to come in for assistance, she said, so she implores anyone with questions to come in for help.

Throughout the state, local colleges have been willing to work with LSS to refer students to the office for questions about repayment, Pakarinen said.

"We're partnering with them to try and address it on the front-end, before they take out the loans," Pakarinen said. "And also on the backend after they've already taken out those loans."

It's rewarding to help someone who's fallen behind get back on track and see the relief they feel, Eastman said.

"They're scared to death, absolutely terrified when they come in here, and you can feel the tension," Eastman said. "But as soon as you start going over repayment options and they realize there is hope, I can literally see the relief come off their shoulders."


SPENSER BICKETT may be reached at 218-855-5859 or . Follow on Twitter at .


This story has been updated to reflect the correct name of Lutheran Social Service. The original story listed it as Lutheran Social Services. The Dispatch regrets the error.


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