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EDUCATION

Students dig deeper to pay for college

November 11, 2008|Catherine Ho | Ho is a Times staff writer

Higher college costs and steep losses in college savings plans are forcing students and their parents to borrow more money -- if they can -- to earn bachelor's degrees.

Federal officials, fearing that the continuing credit crunch may stymie college financing efforts, tried Saturday to reassure families that funds would be available.

The Education Department extended legislation from last May that increases lending limits on unsubsidized Stafford loans from $23,000 to $31,000 per undergraduate and allows the department to purchase loans temporarily to boost lender confidence.

"We recognize that the current economic situation has created real financial challenges for students and their families, who are increasingly concerned about how they can secure loans to help cover college costs," Secretary of Education Margaret Spellings said.

"I want to reassure students and their families that federal student aid -- both grants and loans -- remains available to eligible students," she said.

A report by the Project on Student Debt, a Berkeley advocacy group that tracks student loans, found that last year's seniors graduated with an average debt load that was 6% higher than the previous year's grads accumulated.

The average debt of students graduating with loans in 2007 jumped to $20,098 -- up from $18,976 for those graduating in the previous year, according to the report released late last month. In California, the average climbed 2% to $17,215.

This year's graduates may owe even more as they and their parents borrow additional amounts to supplement falling values in their savings plans.

Meanwhile, starting salaries for last year's graduates haven't kept pace, growing only 3% over the previous year.

"Families may have fewer resources available to them," said Matthew Reed, a policy analyst who wrote the Project on Student Debt report. "If families who six or 12 months ago might have looked to a home equity line or savings or investments for college, those sources might be tightening up a bit. If that's the case, that might lead to turning to a federal student or parent loan program."

But whether the pace of borrowing will continue is unclear as the turbulent economy and frozen credit markets strip parents of jobs and make loan standards stricter.

Private lenders "are now charging higher interest rates, demanding higher credit scores and insisting on cosigners," said Ronald W. Johnson, UCLA's director of financial aid. "With tighter restrictions, students will find that their lender options have dwindled."

Until recently, students could obtain private loans with good credit, he said. But now, those who don't have cosigners may not be able to get those loans.

Last year's surge in student debt coincides with rising education costs, which continued to rise this year. The nonprofit College Board, which operates assessment tests, said tuition and fees rose 6.4% at public universities in the 2007-08 school year compared with the previous school year. Room and board were up 5.2%.

Robert Shireman, executive director of the Project on Student Debt, noted that the seniors in the study graduated before the financial downturn, but the economy's tailspin this year "makes high student loan payments even harder to bear."

Students unable to get private loans may turn to government-backed Stafford loans, which generally have lower interest rates than private loans but usually are for smaller amounts.

Unsubsidized Stafford loans don't require students to demonstrate financial need, but the fixed interest rate of 6.8% accrues from the date of the loan.

The rate for subsidized Stafford loans dropped in July from 6.8% to 6% and is scheduled to drop the next three years until it reaches 3.4%. Unlike with unsubsidized loans, the government pays the interest while the student is in school.

Despite a tightening credit market, "the bottom line is that federal loans are still available in spite of what people might think in the credit crisis," Reed said. "Everyone can still get a federal student loan."

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catherine.ho@latimes.com

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