...Thirty-nine percent (39%) of student borrowers now graduate with unmanageable levels of debt, meaning that their monthly payments are more than 8% of their monthly incomes. According to new data from the Department of Education's National Postsecondary Student Aid Study (NPSAS), not only are the majority of students turning to loans to finance college, but debt levels are also escalating. In 1999-2000, 64% of students graduated with student loan debt, and the average student loan debt has nearly doubled over the past eight years to $16,928.
Often the students who are most likely to graduate with debt are the same students who experience financial hardship after graduation. In 1999-2000, 71% of students from families with incomes less than $20,000 graduated with debt, compared to 44% of students from families with incomes more than $100,000. In all likelihood, students from low-income backgrounds receive limited financial assistance from and may have financial obligations to their families after graduation.
In addition, some groups of students are more likely to face unmanageable debt burden after graduation. Fifty-five percent (55%) of African-American student borrowers and 58% of Hispanic student borrowers graduated with unmanageable debt burden....
...Other Debt Many students take on additional debt burden from other sources such as credit cards, Parent Loans for Undergraduate Students (PLUS), and private label loans. According to the 1999-2000 NPSAS data, 41% of the graduating seniors carried a credit card balance, with an average balance of $3,071. Student borrowers were even more likely to carry credit card debt, with 48% of borrowers carrying an average credit card balance of $3,176. The average student borrower who carries a credit card balance owes $20,104 to credit card companies and loan underwriters after graduation.
Many families also take out PLUS loans, federal low-interest loans that parents can take out to pay for their children's college education. The average family's PLUS debt was $15,836, and 12% of parents took out these loans. While these loans are intended for parents, it is possible that many students become responsible for repaying the loan after graduation.
Six percent (6%) of all students also borrow loans from private sources, such as independent banks. In 1999-2000, the average private label loan was $6,206. Although debt from these sources is not comparable to the magnitude of the federal student loan program, any debt in addition to the substantial debt from student loans augments the burden of debt after graduation.
Possible Explanations for Increases in Student Debt
Decline in the buying power of Pell grants The Pell grant program is the foundation of federal financial aid for low-income students. Among dependent graduating seniors in 1999-2000, 88% of all Pell grants awarded went to students with family incomes of less than $40,000.
Despite recent increases in the maximum Pell grant award, the buying power of the grant has eroded over the past three decades. In 1976 the maximum award covered 84% of tuition costs at a four-year public institution, today the maximum award covers only 39% of these tuition costs.6
Shift from Savings to Student Loans The percentage of wealthy students who borrow has been increasing at a rapid rate over the past eight years. In recent years, wealthy families may have contributed less than the Expected Family Contribution (EFC) and relied more on student loans. Financial aid offices use the EFC to determine how much a family should pay in order to calculate need-based financial assistance. These families may be saving less for college or spending less of their savings on college - depending on student loans to make up the difference.
It appears that while low-income students borrow to meet need in paying for college, wealthy students may be borrowing in excess of their need. A student budget is the cost of attending college after subtracting grant aid and EFC. While low-income students had an average student budget of $8,351, wealthy students had an average student budget of $2,520. At the same time, wealthy students borrowed $4,321, nearly $2,000 more than their need.
Tuition Over the past ten years, after adjusting for inflation, the median family income increased by 12%, while the average tuition and fees at four-year public institutions increased by 40% and that at four-year private schools by 33%.7 As family income in this country becomes more stratified, tuition as a percentage of family income will continue to increase, particularly for low-income students, amplifying the average student's debt burden.... -- Yoshie
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