Monday, September 14, 2009
Students borrow more money then ever fo college
Written By Anne Marie Chaker
Posted By Michael Rivezzo
Students are borrowing dramatically more to pay for college, accelerating a trend that has wide-ranging implications for a generation of young people.
New numbers from the U.S. Department of Education show that federal student-loan disbursements — the total amount borrowed by students and received by schools — in the 2008-09 academic year grew about 25% over the previous year, to $75 billion.
The amount of money students borrow has long been on the rise. But last year far surpassed past increases, which ranged from as low as 1.7% in the 1998-99 school year to almost 17% in 1994-95, according to figures used in President Barack Obama’s proposed 2010 budget.
The sharp growth is “definitely above expectations,” says Robert Shireman, the deputy undersecretary of the Education Department. “But we’re also in an economic situation that nobody predicted.” The eye-opening increase in borrowing is largely due to the dire economic environment, which is causing more people to seek federal loans, he says.
The new numbers highlight how debt has become commonplace in paying for higher education. Today, two-thirds of college students borrow to pay for college, and their average debt load is $23,186 by the time they graduate, according to an analysis of the government’s National Postsecondary Student Aid Study, conducted by financial-aid expert Mark Kantrowitz.
Only a dozen years earlier, according to the study, 58% of students borrowed to pay for college, and the average amount borrowed was $13,172.
The ripple effects for today’s heavily indebted young people are becoming palpable. A growing body of research suggests that tough loan payments are affecting major life decisions by recent graduates, forcing them to put off traditional milestones, from buying a first home even to marriage and having children.
Ironically, the rising levels of borrowing may be contributing to the accelerating cost of college, some college finance experts say. Loans can give colleges an artificial sense of a family’s ability to pay tuition. To some extent, that false sense of security gets built into the assumptions schools make when setting prices, say experts. The idea is that as prices rise, families borrow more and more, spurring prices to rise further, which in turn requires more borrowing.
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