College graduates leaving school with a degree in hand are also walking out into the “real world” with a whole lot of something else – educational debt.
A National Center for Education Statistics study showed undergraduate students in 2000 who obtained a bachelor’s degree borrowed 37.4 percent more than their 1992 counterparts. That’s a total average of $19,300 from all sources, up from $12,100 eight years earlier.
And more students borrowed more money: The percentage borrowing at least $25,000 jumped from 7 percent to 26 percent. Nationally, a student will take out $3,344 each year in federal loans to pay for college. In Rhode Island, they borrow an average of $3,997 a year.
“That’s significantly above the national average,” said Jack Warner, Rhode Island’s commissioner of higher education. Rhode Island and Massachusetts have a large number of private institutions, however. “And the debt burden tends to be higher for private education students. But tuitions even in the public sector (here) tend to be higher than a family’s ability to pay.”
Rhode Island ranks third highest in New England, behind Massachusetts and Vermont for the average amount borrowed annually. Warner said Rhode Island’s public institutions raised their tuitions an average of 7 percent or 8 percent over the past few years.
“We’ve tried to moderate those increases as much as we can,” Warner said.
Between 1992-93 and 2002-03, the federal loan volume for undergraduate and graduate borrowing increase 137 percent. Students borrowed a total of $49.1 billion in 2002-03 compared to $20.7 billion in 1992-93.
“When you look at the cost of attending an institution of higher education compared with a family’s ability to pay … they tend to make up the gap by taking loans out,” Warner said.
The study found that higher borrowing limits, rising tuitions and a greater number of low-income students have all driven up the average debt burden of college graduates. But lower interest rates and higher salaries are relieving some of the sting of owing more, the study suggests.
Even though the total sum that students borrowed grew, on average, by 60 percent, monthly payments rose by only 30 percent. According to the study, the average student now pays about $210 a month. In the early 1990s, they were paying about $160 a month. Still, half of student borrowers pay $200 or more a month. In 1994, only 28 percent did.
Since the price of going to college has outpaced inflation, students and their families have had to borrow more money. Coupled with the 1992 Reauthorization of the Higher Education Act that increased loan limits on Stafford loans that expanded eligibility for both undergraduates qualifying for need-based aid and for undergraduates regardless of their financial need, students borrowed 35 percent more money between 1992-93 and 1993-94 alone.
Noel Simpson, executive director of the Rhode Island Student Loan Authority, said it’s tough to get a sense of how much debt students are leaving school with.
“It’s difficult to get a really good number because so many students are borrowing on credit cards and they may also be borrowing under alternative loan programs,” Simpson said.
While Simpson said the best loan terms are offered through the federal loan program, “it’s not enough for some students and parents. They have to turn to sources outside the federal loan program.”
Those sources include bank loans, home equity loans or private educational loans.
Simpson said he’s also noticed a change in who is doing the borrowing to finance higher education.
“The shift we’re seeing is parents are borrowing less and shifting the responsibility to their kids,” Simpson said. A shift from grants and scholarships to loans over the past 20 years has also driven up the cost of going to school for both public and private institutions, Simpson said.
That shift has meant that students are graduating and getting jobs, but struggling to make ends meet.
“I think that students are making sacrifices and deferring buying a new home or a new car just so they can fulfill their student loan obligation,” Simpson said. “They may be living at home longer.”
Winifred Brownell, dean of the University of Rhode Island’s College of Arts and Sciences, said she has heard of such hardships anecdotally.
“The story I’m hearing is it’s more difficult now than ever before (to make ends meet) after college,” Brownell said. “They’re getting jobs, but not getting the kind of health care they took for granted from their parents. They have all this talent, knowledge and potential, but their basic needs are more difficult to satisfy.”
At the University of Rhode Island, students in 2004-05 were expected to borrow $61 million in loan programs. A total of 12,233 loans were granted to students and their parents. The figure includes students with multiple loans and parent loans.
“That doesn’t take into consideration how many families are using home equity loans to fund education,” Enrollment Services Director Harry Amaral said.
Amaral said when he began working at the university in 1974, federal loans there totaled $2.5 million. In the 1994-95 school year, 8,295 loans totaled $32 million.
“Our enrollment hasn’t doubled, more of the student body is taking out more money in loans,” Amaral said. Default rates on education loans are relatively low at URI, Amaral said. In 2002, 3.6 percent of borrowers had defaulted on their loan obligations.
There’s a limit on the amount of federal money an undergraduate can borrow, though. The maximum a first-year, dependent student can borrow is $2,625. Third- and fourth-year students can borrow $5,500. The maximum amount a dependent student can borrow through the years under the Stafford program is $23,000. Independent students can borrow up to $46,000.
Graduate students can borrow up to $18,500 for each year of study – up to $138,500 in total. Repayment begins six months after the student leaves school.
The Perkins loan program, another federal program, allows undergraduates to borrow up to $4,000 a year up to $20,000 in total over a college career. Graduate students can borrow up to $6,000 a year not to exceed $40,000. Repayment begins nine months after the student leaves school.
The loan awards are decided by individual schools based on need and availability of funds, Simpson said.
“Typically, students have 10 years to repay loans, though people with a balance over $30,000 can extend it up to 30 years,” Simpson said.
Interest rates on the loans are variable and set once each year. The Stafford rate is based on the interest rate for a 91-day treasury bill plus 2.3 percent. The current rate is 3.37 percent.
Simpson said RISLA officials anticipate that rate could go up 2 percent because interest rates have climbed in the past year.
Simpson said he doesn’t think it often takes students longer than 10 years to pay off their student loans.
“There is a loan program called the consolidation loan where, depending on the amount of money they borrowed, they can fix the interest rate on that loan,” Simpson said.
