Student Loan Debt Is on the Rise, and College Grads Face Growing Financial Obstacles

Student Loan Girl — Sun, 04 Nov 2007 20:10:00 GMT

Money. Some of us have it. Some of us need more of it. Particularly recent college grads transitioning from their campus to the workspace, from having student loans available that help pay their living expenses to having to make it on their own—all while paying back those student loans that paved their way to graduation.

With the surge in student loan debt outpacing the growth in starting salaries, and with tuition increases far exceeding increases in federal financial aid, a growing number of college graduates are facing barely manageable levels of student loan debt.

Tuition Hikes Outstrip Increases in Federal Financial Aid Awards

“Student aid continues to grow, but not as fast as tuition, and not enough to make up for the difference between family incomes and the price of college,” says Larry Abramson in a story for National Public Radio (“Tuition Hikes Outpace Student-Aid Increases,” Oct. 26, 2007).

According to the College Board’s “Trends in College Pricing” 2007 report, average published tuition and fees for in-state college students at four-year schools climbed by 6.6% for the 2007–08 academic year, a hike that “outpaced increases in the financial aid that lowers what most students actually pay” writes Erica Perez in the Milwaukee Journal Sentinel (“College Costs Outpace Inflation,” Oct. 23, 2007).

Starting Salaries Increasing More Slowly Than Student Debt

With more tuition to have to pay, students are graduating with more student loan debt than ever. In 2004, two-thirds of college graduates left school with student loans, and between 1993 and 2004, the average debt for college graduates with student loans soared a staggering 107%, according to a report by Luke Swarthout, a Higher Education Associate for the U.S. PIRG Education Fund. Student loan debt, Swarthout notes, is rising faster than both the cost of living and the cost of health care (“Student Debt and Consumer Costs in the Minneapolis–St. Paul Area,” July 2006).

Student debt levels are also eclipsing income gains. The “rapid rise in student debt comes while the real median income of younger Americans has only modestly increased” by 4.4% between 1995 and 2004 for household earners under 35, writes Swarthout.

Starting salaries for recent graduates can’t keep pace either. A report on “Student Debt and the Class of 2006” released by the Project on Student Debt found that for graduating seniors, average student loan debt rose 8 percent between 2005 and 2006, while starting salary offers rose only about 4 percent.

“Too many young people leave college saddled with heavy debt burdens and struggle to cover their loan payments on top of basic living expenses,” says Robert Shireman, Executive Director of the Project on Student Debt, in a press release for their recent study. “Students need better options and counseling when they’re deciding how to pay for college.”

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Not What It Appears: College Student Relief Act of 2007

Student Loan Girl — Wed, 07 Mar 2007 16:29:00 GMT

According to a March 2, 2007 article written by Olivia Majesky-Pullmann titled, “Just the Stats: Will Student Loan Interest Rate Cuts Really Help Low-Income Students?” that appeared in Diverse: Issues in Higher Education, “The College Student Relief Act of 2007, recently approved by the U.S. House of Representatives, has been hailed as a savior for students trying to handle the ever-rising costs of college. Phased in over five years, the interest rate on federally backed loans will be cut in half, from 6.8 percent to 3.4 percent. But some say the cut isn’t the saving grace politicos make it out to be.”

Majesky-Pullmann quoted U.S. Rep. George Miller, D-CA, of the House Committee on Education & Labor, as saying, “Once fully phased in, these cuts would save the typical borrower, with $13,800 in need-based federal student loan debt, $4,420 in savings over the life of the loan,” pointing out that he is “relying on an analysis by U.S. PIRG. The new interest rate will drop to 3.4 percent by 2001, but on January 1, 2012 the rates will go back to 6.8 percent.”

In the article, Majesky-Pullmann reported that, “U.S. PIRG, a public interest advocacy group, has said Miller’s office has misquoted its findings. Miller’s prediction assumes that the interest rate at its low of 3.4 percent will be permanent, although the act is scheduled to expire in 2012. A student with $13,800 in debt might save $4,420, but only if the rate was not scheduled to go back up to 6.8 percent in 2012.

“Even if the 3.4 percent interest rate were to be extended, it would only help borrowers taking out loans in 2012 or later. Unlike a mortgage, when the rates drop, students with existing loans do not have the capability to re-finance at the new, lower rates.”

Who is Affected by the STAR Act?

Although the STAR Act is being touted as one that will help low-income students, Majesky-Pullmann summarizes Mark Kantrowitz, publisher of FinAid.org, as saying “there are several misleading errors in Miller’s claim. He says the committee overstated the average cumulative subsidized Stafford Loan debt of $13,800 for undergraduate borrowers because they didn’t account for two-year students when they averaged the per-student debt. The actual total debt for four-year degree completers in 2003-2004 totaled $10,667, and is projected to increase to $12,000 in 2007-2008. Two-year degree completer’s debt was $5,488 in 2003-2004 and will increase to about $6,200 by 2007-2008.

“When combining unsubsidized and subsidized student loans, the total average cumulative debt is roughly $13,800, thus saving the borrower approximately $4,400 at 3.4 percent with a 15-year repayment term. ‘Since the 3.4 percent interest rate is limited to a six-month period, it is unreasonable to assume that all of the subsidized Stafford loan debt will be at this rate,’ Kantrowitz says.”

The STAR Act Does Not Make College More Affordable

In the long run, the STAR Act does not make college more accessible or affordable for low-income students nor does it benefit the taxpayer. Majesky-Pullmann wrote, “Kantrowitz says the U.S. government will lose billions in interest revenue because of the lower interest rate,” and quoted him as saying, “It is misleading to say that the legislation makes college more affordable for needy students at no new cost to taxpayers.”

Additionally, Majesky-Pullmann reported, “Thomas G. Mortenson a policy analyst with Postsecondary.org, has a similar view on the proposed act, ‘My concern is that this idea does nothing to make college affordable. It does nothing to reduce the $32 billion in unmet financial need that we identified from the 2004 NPSAS study.’”

It is important to keep up to date on all the news regarding student loans and education.

Talk to the education financial advisors at NextStudent. They have all the information and advice you need on student loans. Check out www.nextstudent.com.

Be sure to tune in next Monday for my next blog on student loan issues in the news.

Student Loan Girl

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Student Loan Blog : U.S. PIRG

Student Loan Debt Is on the Rise, and College Grads Face Growing Financial Obstacles

Not What It Appears: College Student Relief Act of 2007