Students take on more debt
But borrowing may slow as credit tightensHigher college costs and steep losses in college savings plans are forcing students and their parents to borrow more to earn bachelor’s degrees.
Last year’s seniors, facing increasing costs through their college years, graduated with an average debt load that was 6 percent higher than the previous year’s grads accumulated, according to a report released this fall.
The average debt of students graduating with loans in 2007 jumped to $20,098 — up from $18,976 for those graduating in the previous year, according to the Project on Student Debt, a Berkeley, Calif., advocacy group that tracks student loans.
This year’s graduating class might owe even more as they and their parents borrow more to supplement falling values in their savings plans.Meanwhile, starting salaries for last year’s graduates haven’t kept pace, growing only 3 percent over the previous year.
"Families may have fewer resources available to them," said Matthew Reed, a policy analyst who wrote the project’s report. "If families who six or twelve months ago might have looked to a home equity line or savings or investments for college, those sources might be tightening up a bit. If that’s the case, that might lead to turning to federal student or parent loan program."
Tougher loan standards
But whether the pace of borrowing will continue is unclear as the turbulent economy and frozen credit markets strip parents of jobs and make loan standards stricter.
"Private loans are now charging higher interest rates, demanding higher credit scores and insisting on co-signers," said Ronald Johnson, director of financial aid at the University of California, Los Angeles. "With tighter restrictions, students will find that their lender options have dwindled."
Until recently, students could obtain private loans with good credit, he said. But now, those without co-signers might not be able to obtain those loans.
"Tuition and other costs of attending college have continued to rise and grant aid has not kept up with the rise," Reed said.Last year’s spike in borrowing coincides with rising education costs, which kept going up this year. The nonprofit College Board, which operates assessment tests, said tuition and fees rose 6.4 percent at public universities in 2007-08, compared with the previous school year. Room and board were up 5.2 percent.
The project’s executive director, Robert Shireman, noted that the seniors in the study graduated before the financial downturn, but the economy’s tailspin this year "makes high student loan payments even harder to bear," he said.
Stafford loan help
The federal government tried to reassure families Saturday as the Education Department extended legislation from May that increases lending limits on unsubsidized Stafford loans from $23,000 to $31,000 per undergraduate and allows the department to purchase loans temporarily to boost lender confidence.
"We recognize that the current economic situation has created real financial challenges for students and their families, who are increasingly concerned about how they can secure loans to help cover college costs," U.S. Secretary of Education Margaret Spellings said. "I want to reassure students and their families that federal student aid — both grants and loans — remains available to eligible students."
Fixed interest rate
Unsubsidized Stafford loans are U.S. government-backed and don’t require students to demonstrate financial need. Interest rates for Stafford loans are generally lower than private loans but often have lower limits for borrowing. The interest rate, which accrues from the date of the loan, is fixed at 6.8 percent.
The rate for subsidized Stafford loans dropped in July from 6.8 percent to 6 percent and is scheduled to drop the next three years until it reaches 3.4 percent. Unlike with unsubsidized loans, the government pays interest while the student is in school.Despite a tightening credit market, "the bottom line is that federal loans are still available in spite of what people might think in the credit crisis," Reed said. "Everyone can still get a federal student loan."
Source: http://www.chron.com/disp/story.mpl/business
