Students combat loan debt, interest rates after graduation
With a competitive job market and tuition on the rise, high school graduates are facing the nearly unavoidable fate of the student loan application.
Nationally, 65 percent of students will borrow money by the time they graduate. On average, this amount will total nearly $20,000 and could take students nearly a decade to pay back, according to one of the nation's leading lenders, Nellie Mae.
In her recent book Generation Debt, 24-year-old Anya Kamenetz attributes many of the problems 20-somethings face in establishing their careers and economic stability with this financial burden.
She points to the political apathy of college students and Congress' subsequent disregard of the soaring tuition and loan interest rates that put students at a serious economic disadvantage after graduation.
Attending Baylor in 1998 would have cost $18,000 per semester, including room and board, according to the university Web site. Today students pay nearly $30,000.
Cliff Neel, assistant vice president and director of scholarships and student financial aid, said 53 percent of Baylor students graduate with some kind of loan to pay for education. Of that percentage, the average loan amount is $26,650. Kamenetz explains that the growing gap between this college debt and income is creating a "class at a systemic disadvantage."
According to the Nellie Mae Web site loan calculator, if a student has $18,000 in Stafford Loans, lower than the national average, at 5.3 percent interest during the pay period and 4.7 percent while in school, he or she will eventually pay $29,273 over the standard 120-month pay period. This debt equates to $235 per month in installment payments.
Compounding the difficulties for this new "class" of college graduates is recent congressional legislation that further limits loan consolidation.
The Single Holders Act, siding with the lending companies, prevents students with several loans from a single lender from consolidating with another company for lower rates.
Congress also repealed several laws that allow borrowers to consolidate their loans more than once.
"After July 1, married couples will not be able to consolidate their student loans," Neel said. "The interest rate will also be set at 6.3 percent for all federal student loans."
"We have counseling team members that work with students to find the best plan for them -- that could be federally subsidized or private loans," he said. "We always encourage students to take out only as much as they have to."
With state and federal grant amounts dropping and Baylor tuition rising, Neel said, many students are having to keep up with the cost by taking out alternative loans from private lenders that have higher interest rates than their federally subsidized counterparts.
Because of this dependency on private loan programs, Neel said the department is working with commercial lending partners to offer students the lowest interest rates possible.
To further combat the growing problem, Neel said the financial aid department is looking at improving retention rates. When students drop out of school because they can't afford the tuition, all the money they have invested is lost.
Neel also said the financial aid office tries to help students profit from their educational investment by shortening graduation time.
"If it takes a student five or six years to graduate, then the cost of education goes up significantly," he said. "We're trying to get students into the right classes, so they can be on the track to graduate on time and with the least debt."
Beyond these measures, he said, the financial aid department is limited because of low federal and state funding.
In February, Congress approved $11.9 billion in cuts to federal college student financial aid to tighten the 2006 budget.
Dr. Thomas Myers, associate political science professor, said the Bush administration is cutting student loan funding because of the mounting federal deficit.
"The lack of federal funding for education is a reflection of the administration's priorities," he said. "Regardless of young people's participation in the political scene, the Bush administration just isn't interested."
Myers said President Bush talks about educational support, yet keeps cutting funds.
According to Statline.org, the president's 2007 budget proposal cuts education funding by $3.1 billion, a drop of 5.5 percent from 2006.
One of the 42 programs slated for elimination is the Perkins Loan program for low-income college students.
Despite the pessimism surrounding the future of higher education bills and benefits, according to a Nellie Mae borrowers poll, more than 70 percent of people say their current debt was worth the life experience and leg-up in the career world that college provided.
Dr. Franklin Potts, associate finance professor, said any asset that appreciates in value, like a student loan, is well worth the investment.
"If you go to college and double your earning capacity," Potts said, "even if you have to take out loans, you're still increasing your net worth."
Potts classified debt in three categories: good, neutral and bad.
"The biggest mistake that students make is to acquire bad debt while in school," he said. He defined bad debt as consumptive purchases such as food, clothing or vacations.
"Many students don't distinguish between student loans as an investment in their future and credit card debt that seriously damages your net worth," Potts said.
Potts compared the soon-to-be-fixed Stafford loan rate of 6.3 percent with 15 percent on a credit card and 8 percent on a new car.
"Students think they can have it all," he said. "They have loans and car payments. Then they want to buy a house, and it just doesn't work that way."
Source: http://www.baylor.edu/Lariat/news.php?action=story&story=40469
Nationally, 65 percent of students will borrow money by the time they graduate. On average, this amount will total nearly $20,000 and could take students nearly a decade to pay back, according to one of the nation's leading lenders, Nellie Mae.
In her recent book Generation Debt, 24-year-old Anya Kamenetz attributes many of the problems 20-somethings face in establishing their careers and economic stability with this financial burden.
She points to the political apathy of college students and Congress' subsequent disregard of the soaring tuition and loan interest rates that put students at a serious economic disadvantage after graduation.
Attending Baylor in 1998 would have cost $18,000 per semester, including room and board, according to the university Web site. Today students pay nearly $30,000.
Cliff Neel, assistant vice president and director of scholarships and student financial aid, said 53 percent of Baylor students graduate with some kind of loan to pay for education. Of that percentage, the average loan amount is $26,650. Kamenetz explains that the growing gap between this college debt and income is creating a "class at a systemic disadvantage."
According to the Nellie Mae Web site loan calculator, if a student has $18,000 in Stafford Loans, lower than the national average, at 5.3 percent interest during the pay period and 4.7 percent while in school, he or she will eventually pay $29,273 over the standard 120-month pay period. This debt equates to $235 per month in installment payments.
Compounding the difficulties for this new "class" of college graduates is recent congressional legislation that further limits loan consolidation.
The Single Holders Act, siding with the lending companies, prevents students with several loans from a single lender from consolidating with another company for lower rates.
Congress also repealed several laws that allow borrowers to consolidate their loans more than once.
"After July 1, married couples will not be able to consolidate their student loans," Neel said. "The interest rate will also be set at 6.3 percent for all federal student loans."
"We have counseling team members that work with students to find the best plan for them -- that could be federally subsidized or private loans," he said. "We always encourage students to take out only as much as they have to."
With state and federal grant amounts dropping and Baylor tuition rising, Neel said, many students are having to keep up with the cost by taking out alternative loans from private lenders that have higher interest rates than their federally subsidized counterparts.
Because of this dependency on private loan programs, Neel said the department is working with commercial lending partners to offer students the lowest interest rates possible.
To further combat the growing problem, Neel said the financial aid department is looking at improving retention rates. When students drop out of school because they can't afford the tuition, all the money they have invested is lost.
Neel also said the financial aid office tries to help students profit from their educational investment by shortening graduation time.
"If it takes a student five or six years to graduate, then the cost of education goes up significantly," he said. "We're trying to get students into the right classes, so they can be on the track to graduate on time and with the least debt."
Beyond these measures, he said, the financial aid department is limited because of low federal and state funding.
In February, Congress approved $11.9 billion in cuts to federal college student financial aid to tighten the 2006 budget.
Dr. Thomas Myers, associate political science professor, said the Bush administration is cutting student loan funding because of the mounting federal deficit.
"The lack of federal funding for education is a reflection of the administration's priorities," he said. "Regardless of young people's participation in the political scene, the Bush administration just isn't interested."
Myers said President Bush talks about educational support, yet keeps cutting funds.
According to Statline.org, the president's 2007 budget proposal cuts education funding by $3.1 billion, a drop of 5.5 percent from 2006.
One of the 42 programs slated for elimination is the Perkins Loan program for low-income college students.
Despite the pessimism surrounding the future of higher education bills and benefits, according to a Nellie Mae borrowers poll, more than 70 percent of people say their current debt was worth the life experience and leg-up in the career world that college provided.
Dr. Franklin Potts, associate finance professor, said any asset that appreciates in value, like a student loan, is well worth the investment.
"If you go to college and double your earning capacity," Potts said, "even if you have to take out loans, you're still increasing your net worth."
Potts classified debt in three categories: good, neutral and bad.
"The biggest mistake that students make is to acquire bad debt while in school," he said. He defined bad debt as consumptive purchases such as food, clothing or vacations.
"Many students don't distinguish between student loans as an investment in their future and credit card debt that seriously damages your net worth," Potts said.
Potts compared the soon-to-be-fixed Stafford loan rate of 6.3 percent with 15 percent on a credit card and 8 percent on a new car.
"Students think they can have it all," he said. "They have loans and car payments. Then they want to buy a house, and it just doesn't work that way."
Source: http://www.baylor.edu/Lariat/news.php?action=story&story=40469
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