Stuff You Oughta Know About Student Loan Debt

Stop the presses...student loan debt is rising! Maybe this is news to some, but working in the admission office of a private university, it surely isn't shocking to me. I know students who have left college owing more than they would on a mortgage for a house. That said, while I believe in living a debt-free lifestyle, and I am working towards that goal, I do understand that student loans are the only way some people will ever finance their college education. Now, does this mean that there aren't better ways to manage that debt? No. But, given the overall sense of entitlement permeating the country, not many are willing to accept something that they perceive as second choice if there first choice is within their grasps - albeit with a touch of debt thrown in.

Government data says that the average 2003-o4 college graduate owed nearly $20,000 in student loans on graduation day. It is not unreasonable to think that this amount will rise significantly in the coming years, too. The government recently raised the amount that students can borrow, so naturally, this number is likely to rise. Frankly, the story is probably even worse than stated. It doesn't seem that this study takes into account the amount that parents borrow to send their kids to college, most likely in the form of PLUS Loans (Parent Loan for Undergraduate Studies). "Gap" or "alternative" loans also increase the total amount of money borrowed to pay for college. PLUS Loans and gap loans also carry higher interest rates than federal student loans, so they are an even more expensive option for paying for college.

Why the exponential spike in loans for college funding? The simplest answer is that the cost of attendance at both public and private universities is rising faster than the money available in gift aid (scholarships and grants, both from the institution and the state and federal governments). For example**, the amount available in Pell grant money to the students who theoretically need the most to attend college was $3,354 in 1990. In 2006, that amount is $4,050. Using the inflation calculator, you can figure that a Pell grant was worth nearly $5,200 in 1990 in current dollars. Not only has the Pell grant not kept up with the increasing costs of college education, it has effectively been CUT. So, if the poorest students have less access to education grants from the government, and still want to attend school, logic says that the money may have to come from loans.

How about the cost of attendance? If the aid is not increasing, surely the cost of attendance can't be going up much, right? Ummm....not exactly.

Average College Tuition and Fees 2005-06 versus 2004-05

• At four-year private nonprofit institutions, tuition and fees average $1,190 more than last year ($21,235 versus $20,045, a 5.9 percent increase). Total charges average $29,026 ($1,561 more than last year's $27,465, a 5.7 percent increase).
• At four-year public institutions, tuition and fees average $365 more than last year ($5,491 versus $5,126, a 7.1 percent increase). Total charges average $12,127 ($751 more than last year's $11,376, a 6.6 percent increase).
• At two-year public institutions, tuition and fees average $112 more than last year ($2,191 versus $2,079, a 5.4 percent increase).

Average College Tuition and Fees 2005-06 versus 1989-90

• At four-year private nonprofit institutions, tuition and fees average $9,235 more than 1989-90 ($21,235 versus $12,000). That makes for nearly a 77% increase, nearly 30% more than the inflation rate, in general terms over the same period.
• At four-year public institutions, tuition and fees average $2,591 more than 1989-90 ($5,491 versus $2,900). That makes for an 89% increase, almost 40% more than the inflation rate, in general terms over the same period.
  
• At two-year public institutions, tuition and fees average $1,091 more than 1989-90 ($2,191 versus $1,100). I don't even need to do the math to see that tuition almost doubled since 1989-90, while inflation overall stood at about 55%.

Given all this data, it is easy to see how people need to rely more heavily on debt to finance their education. Tomorrow, I will examine ways to manage this debt -- yes, I do believe that there is a way to do this!

**Data source: Paying for College