Students forced to borrow more to finance college educations
As private lenders tighten standards, the U.S. increases lending limits on unsubsidized Stafford loans to ensure that funds for education will be available.
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."
