Students are much more likely to depend on loans to fund their college educations than ever before, according to the results of studies conducted by the Nellie Mae Educational Foundation and the College Board.
In a 2002 study by the Nellie Mae Foundation, over 70 percent of students who borrowed money to attend a college or university said they could not have afforded a higher education without access to loans. Nearly 60 percent said student loans gave them the financial means to attend the university of their choice.
A College Board study, posted on the College Board website, documented trends in student financial aid in 2002 and found that federal loans accounted for more than 47 percent of all financial aid received. The Nellie Mae study found that the amount of loans taken out by students increased 66 percent over a period of five years through 2002.
The average dollar amount borrowed for a bachelor’s degree for the 2002-03 academic year amounted to $18,900. The number of students taking out loans to pay for their education is also increasing.
College tuitions are also on the rise, which could be a factor that has led to a greater demand for student loans.
Another College Board study on college pricing found that, after adjusting for inflation, average national college tuitions for public institutions have nearly doubled, increasing 85 percent from $2,535 in 1993-94 to $4,694 in 2003-04. Private institutions have increased their tuitions an average of 79 percent from $11,007 to $19,710 over the same time period.
Stagnant or decreasing funding for post-secondary education at the state-level is partly responsible for the rise in tuition at public universities.
Marie O’Malley, vice president of the Nellie Mae Foundation, said federal funding has not grown with the increases in tuition over the last few years.
“What’s gone on in the last two to three years (are) state-level budget cuts,” O’Malley said. “I see reports from across the country that show when funding goes down, tuitions tend to go up. The federal government doesn’t control the cost of college, but (it does) fund loan and grant programs, and the Pell Grant hasn’t grown at the same rate as the cost of college has.”
“Revenues from non-tuition sources have not kept pace with the rising cost of educating students,” said Sandy Baum, professor of economics at Skidmore College in New York, who co-authored the Nellie Mae study with O’Malley. “Technology, health care costs for employees, and services for students have risen particularly rapidly.
In addition, competition among institutions has caused more improvements in facilities and services than might be considered necessary.
Financial aid has been increasing more rapidly than other components of the budget as both public and private institutions try to increase access to college, and compete for more desirable students.”
Baum said other factors contributing to tuition increases include inadequate state appropriations for public colleges and universities, and “declining endowment values and annual giving” in the private sector.
Baum points out that in 1992-93, the federal Stafford Loan program was restructured to provide subsidized and unsubsidized loans.
With subsidized loans, the federal government pays the interest on the loan during the student’s college education, while with an unsubsidized loan, the student is responsible for paying the interest on that loan.
In order to receive subsidized loans, a student must demonstrate economic need, but with unsubsidized loans, almost any student can borrow money.
Jacqueline King, director of the American Council on Education’s Center for Policy Analysis, said she agrees this change in federal loan policy was a turning point in the financing of a college education.
“Students took advantage (of the changes in need-analysis and eligibility rules), and you saw a big run up (of borrowing) in the years that followed 1992,” King said.
The College Board found that the dollar amounts (adjusted for inflation) awarded for subsidized Stafford loans in the period from 1992-93 to 2002-03 rose by 60 percent.
Amounts awarded for federal grants within the same 10-year period increased only an average of 47 percent. Similarly, the numbers of federal loans taken out during that time span had a 61 percent increase for subsidized loans, while the number of Pell Grant recipients increased by only 21 percent.
Despite the average debt of nearly $19,000 upon graduation from college, Baum said there are low interest rates and manageable monthly payments for students to minimize the payment of these loans.
“Total debt has increased quite dramatically, but monthly payments have (exponentially) increased less because interest rates are low,” Baum said. “The percentage of (one’s) income (that) former students need (to make in order) to repay loans remains (at) about 6 percent on average, (which is) quite manageable.”
King said that while interest rates on student loans are “very good,” the ease with which they are repaid depends on the health of the economy, to a certain degree. According to her most recent data, a survey conducted between 2000 and 2001 found no increase in the debt-to-income ratio for former students, and therefore, “borrowing remained manageable.”
“In 2000 and 2001, the economy was strong and incomes were higher,” King said. “(Borrowers) were doing OK, because interest rates were low and the economy was good.”
Despite loan burdens, taking out a loan is a better alternative than not going to college, Baum said.
“Going to college and earning a degree has a significant positive impact on people’s lives,” Baum said. “Borrowing for this purpose is a good investment.”
Johnnie Brown, senior sociology major, said he believes he would not have been able to afford his college education without the Stafford loan he is currently receiving.
Brown, who transferred from a two-year college, said he plans to obtain a master’s degree after completing his bachelor’s. He said he has no worries about repaying student loans after completing his education.
“I’ll get a good job,” Brown said.
David Allspaw, junior communication studies major, said he also receives a Stafford loan to help fund his education, along with GI benefits.
Allspaw said he had to take out the loan once he transferred from Pierce College to CSUN, and also since he stopped working once he became a full-time student this year.
Allspaw also said he has minimal concerns about repaying his debt.
“I know I’ll be employed somewhere, and (the student loan) will probably be the only debt I’ll have,” Allspaw said.
After Allspaw obtains his bachelor’s degree, he plans to obtain a master’s degree and possibly a doctorate. He said he will continue to receive student loans throughout his education.
Other students preferred to avoid accumulating student loans.
Fernando Caballero, sophomore computer science major, does not receive a loan, and said he would not consider a loan.
“I wouldn’t want to pay it back,” Caballero said. “I don’t want to have to pay for school after I’m done with it.”
Jenny Portillo, freshman political science major, was offered a loan but turned it down.
“It’s kind of hard to find a job after (graduating),” Portillo said. “It all adds up. That’s why so many college students are in debt.”
Baum said she understands the future financial burdens of student loans.
“Repaying student loans certainly means consuming less of other things,” Baum said. “But it is a reasonable choice because of the long-term benefits.”