All about College Student

A new report by the Pew Research Center shows that reliance upon student loans among college students increased dramatically between 1996 and 2008.

The survey, analyzing data collected by the U.S. Department of Education for the quadrennial National Postsecondary Student Aid Study, examined borrowing trends among graduates in the class of 2008 and made comparisons using inflation-adjusted dollars.

Overall, the Pew analysis revealed that bachelor’s degree recipients in 2008 borrowed, on average, 50 percent more in student loans than bachelor’s recipients who graduated in 1996, while students who were awarded an associate’s degree in 2008 borrowed more than twice what that their 1996 counterparts did.

The report indicates that three significant factors are driving the increased use of student loans:

A greater proportion of college students are taking out student loans.
The college students who take on student loans are borrowing in larger dollar amounts.
More college students are attending for-profit colleges, where student loan debt is highest and most widespread.
A Rise in Debt From College Loans Across the Board

The Pew study notes that students in the class of 2008 were more likely to take out college loans than students in the class of 1996, regardless of the type of school they attended. In addition, the amount of money students are borrowing is increasing.

Among students at public colleges and universities, 60 percent of 2008 graduates took out student loans to pay for their education, while only 52 percent of graduates in 1996 did. At private nonprofit schools, 72 percent of graduates financed their undergraduate degrees with student loans, up from 59 percent in 1996. And nearly all graduates of private for-profit colleges in 2008 — 95 percent — took out student loans, compared with 77 percent in 1996.

The amount of student loan money being borrowed has also grown at every type of school, for every type of degree.

Graduates earning four-year degrees who took out student loans, regardless of institution type, borrowed about $6,200 more than did their 1996 counterparts. Graduates from all institution types who sought associate’s degrees took on about $5,600 more in student loan debt than associate’s degree–earners in 1996. Among students who earned certificates, average student loan debt loads increased by more than $4,100 between 1996 and 2008.

Student Loan Debt Highest at For-Profit Colleges

Nearly one-fourth of all bachelor’s degree students enrolled at for-profit colleges graduated with more than $40,000 in student loan debt, and more than half accrued over $30,000 in college loans.

In comparison, only about 5 percent of bachelor’s students enrolled in public or private nonprofit schools graduated with student loan debt loads that exceeded $40,000. At private nonprofit colleges, 25 percent of all bachelor’s degree students graduated with more than $30,000 in college loans, and at public colleges and universities, just 12 percent of bachelor’s students did.

The trend toward increased student loan borrowing also appeared among students who sought two-year degrees, although students enrolled in public institutions borrowed significantly less than their peers at private for-profit and private nonprofit schools.

One fourth of associate’s degree–earners and certificate-earners at both private for-profit and private nonprofit schools borrowed $20,000 or more to complete their degrees, compared to only about 5 percent of two-year degree-seekers at public colleges.

Among students earning associate’s degrees at for-profit colleges, 17 percent took on more than $30,000 in student loans.

According to the Pew report, students who accumulate $30,000 in student loan debt can expect payments of about $350 per month for a repayment term of 10 years, assuming a fixed 6.8-percent interest rate on the loans — the standard interest rate for federal unsubsidized Stafford student loans.

Students who take out non-federal private student loans will typically have a higher interest rate on those loans, with a higher monthly payment.

Read the full report from the Pew Research Center: “The Rise of College Student Borrowing”

As the U.S. Department of Education considers linking colleges’ and universities’ eligibility for federal student financial aid to the school’s student loan repayment rate, some analysts are looking at just how large the student loan default problem is and what might happen if new student loan repayment rules take effect in 2012 as expected.

Defaults on student loans can be measured in a number of ways, but one of the most common measures of default is the official cohort default rate, defined by the Department of Education as the percentage of a school’s student loan borrowers who enter repayment on certain federal education loans “during a particular federal fiscal year, Oct. 1 to Sept. 30, and default or meet other specified conditions prior to the end of the next fiscal year.”

In other words, the cohort default rate is the percentage of borrowers who enter repayment on their federal student loans and then either stop making payments on their student loan debt or never make payments at all during the 12–24 months after entering repayment.

Student Loan Default Rates vs. Repayment Rates

Government analysts now want to look more closely not at schools’ default rates on federal college loans but at schools’ repayment rates on those loans.

Consumer and student advocates have long argued that the cohort default rate, as currently measured, severely underrepresents the proportion of a schools’ students who are struggling with college loan debt by looking at only an initial 24-month period. The two-year snapshot, these critics maintain, misses a large swath of students who are able to muddle through making their payments for the first couple years but then begin defaulting in the third and fourth years of their repayment periods in accelerated numbers.

The default rate also fails to take into account those students who aren’t able to make payments on their student loans but who aren’t considered to be technically in default because they’ve arranged for a student loan debt management plan that permits them to put off making payments on their federal college loans.

In proposed rules that would regulate a school’s eligibility for federal student aid, the Department of Education would consider a school’s student loan repayment rate and not simply its default rate, as current regulations do.

By expanding its institutional financial aid eligibility rules to include student loan repayment rates, the Education Department would be looking at how many students simply aren’t repaying their student loans — not only counting borrowers who have defaulted, but including those borrowers who are in a legitimate deferred repayment plan or approved forbearance period that allows them to temporarily forgo making their federal student loan payments.

The Student Loan Debt Problem, as Measured by Repayment Rates

Earlier this year, the Department of Education reported that the national cohort default rate was 7 percent for the 2008 fiscal year, the last year for which repayment data are available.

Looking at repayment rates, on the other hand, while also expanding the time span over which student loan repayment is measured, yields a far larger non-payment rate among student loan borrowers and paints a truer picture of the size of the inability-to-repay problem among student loan borrowers.

The Department of Education estimates that in 2009, among alumni of public universities who carried federal student loan debt, only 54 percent of those who had graduated or left school within the last four years were in repayment on their federal student loans — a far cry from the 93-percent national non-default rate of 2008.

The four-year repayment rate was marginally higher for students at private nonprofit universities, at 56 percent. Perhaps predictably, the repayment rate among alumni of private for profit colleges was substantially lower — just 36 percent over four years.

These figures come from a new repayment database that the Department of Education will use to track government-issued student loans, from the time they’re issued until the time they’re paid off. The database can also track what happens in between.

By looking more carefully at each loan’s entire lifespan, the Education Department hopes the database will help identify the point at which borrowers first begin to show signs of trouble repaying their federal college loans.

Schools’ Student Loan Problems Could Mean Loss of All Financial Aid

As the government’s proposed financial aid rules are currently worded, the new rules would allow the Department of Education to impose financial aid restrictions on schools whose overall student loan repayment rate falls below 45 percent.

Schools that have a repayment rate of lower than 35 percent would face the loss of federal student aid altogether.

Using the Education Department’s 2009 data, more than half of the higher education institutions in the United States would face some type of federal student loan sanctions if the proposed financial aid rules were in effect today, and 36 percent of post-secondary institutions would be barred from offering federal student aid for a period of at least two years.

However, the proposed new Department of Education rules will also allow schools to report student loan repayment rates separately by program. By segmenting out repayment rates by program, institutions could avoid school-wide federal financial aid sanctions, leaving intact federal student aid for academic programs whose repayment rates are within the established guidelines, while still receiving sanctions for programs whose graduates consistently fail to make payments on their federal college loans.

Reasons Student Loan Consolidation? Due to the rising cost of higher education, a large number of students have been forced to finance their education by getting student or education loans. While student loans are easy to get and come with the cheapest rates of interest, paying them off is not so easy for the vast majority of students who find themselves facing mountains of student loan debt.

People generally find it tough to pay back student loans because the loan installments are not calculated keeping in mind other types of student loan debt. Most students also accumulate a number of other loans like huge credit card bills and car loan
, which also require financing upon graduation. The best way of getting out of this kind of debt trap is to go in for student loan consolidation. A student loan consolidation program can be a lifesaver for a student and can totally turnaround a negative student loan debt situation to one of good fortune.

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