Student Loan Debt Exploding Nationwide

Suzanna de Baca -- Expert Business Source, 4/28/2008 7:04:00 AM

With college tuition costs rising at most public and private universities across the country, more and more students are relying on student loans to help fund their education. While educational loans can make it possible for many students to afford college, an epidemic of out-of-control debt is sweeping the nation’s college students, affecting their financial health for years to come.

According Fin Aid, a public service website dedicated to educating consumers about student loans, two-thirds (65.7 percent) of 4 year undergraduates leave college with some amount of debt. While the site offers data from the 2003-2004 National Postsecondary Student Aid Study (NPSAS) which says average student loan debt among graduating seniors is $19,237 (excluding PLUS Loans but including Stafford, Perkins, state, college and private loans), it goes on to say that 25 percent of undergraduates borrow more than $24,936 or more and 10 percent borrow more than $35,213.

Considering the amount of tuition at most universities, these numbers over a four year period do not seem altogether surprising, yet report after report in newspapers and other media indicate that there are countless students who take out debt way in excess of the norm. News reports regularly feature the stories of students struggling with over $100,000 of student loans.

Tuition rising across the country.

An April 26, 2008, Houston Chronicle article entitled “High cost of college: Reality 101,” by Jeannie Kever states thattuition and fees at public universities in Texas have risen 40 percent since 2003, when lawmakers allowed the schools to set their own rates. Tuition in other states has also increased at alarming rates.

Kever cites statistics from the College Board which indicate approximately 75 percent of full-time undergraduates received financial aid in 2006-07. Kever writes, “That was mostly federal loans and grants, but private loans, with interest rates based on the borrowers' credit history, have become more popular as the cost of college rises.”

She notes that private loans accounted for 24 percent of all education loans in 2006-07, a 6 percent increase over a decade.

Why so much borrowing?

Why are students and families borrowing so much money? Is it just tuition hikes? Are parents less prepared to help pay for college? Are students not working as many hours or saving money during the summer? Is there a modern mentality that debt is acceptable?

While there is more and more research being conducted to explore why student debt loads are exploding, anecdotal evidence indicates that today’s students expect to live a much higher standard of living than their predecessors. New technology, travel, apartment style dorm living, and eating out have all become “necessities” instead of luxuries. If some of this student loan debt is going to fund spring break fun or new stereos, it is a misuse of expensive credit.

What can you do?

Shop around. If you have a child ready to go to college and do not have enough funds to pay outright, or if you are a student looking at the high cost of tuition, be cautious about your debt load. Shop around for loans rather than accepting what the school may offer as a matter of course. While federally funded loans may have low rates, private loans can be pricey and failure to pay on time can damage both the student and the parent’s credit, if the parent is a co-signer.

Scholarships. Scholarships are more plentiful than many students realize but it takes effort to research, find and apply for them. Various websites offer information about scholarships that students may be eligible for based on many factors besides academics, including their ethnic heritage, the state they’re studying in, major, parents’ professions, and extracurricular interests.

Get a job. Many professors I’ve spoken to report that parents are hesitant to have their children work during college, but it is preferable for a college student to work a reasonable amount of hours to fund their food, books, or entertainment than to borrow for that purpose. Similarly, if your child can work at a summer job and save money that can be applied to college, it will not only ease the debt burden but also teach them valuable professional skills.

Student loans have their place, but over-dependence on borrowing leaves many students and parents strapped with debt later on. Plan carefully for the future, and explore your options before committing to high interest debt to fund your own or your child’s college education.

Suzanna de Baca is president of Private Capital Solutions Group. Securities offered through Broker Dealer Financial Services Corp. Member FINRA & SIPC. Investment Advisor Representative of Investment Advisors Corp., A Registered Investment Advisor. Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice.