Posted 5:45 p.m. March 13
by Rati Bishnoi
U-WIRE (DC BUREAU)
(U-WIRE) WASHINGTON – As the nation watches the Enron scandal unfold after the energy giant’s bankruptcy earlier this year, another looming debt crisis remains largely ignored: the increasing level of college students graduating with high debt levels.
According to “The Burden of Borrowing,” a report released by the State Public Interest Research Group’s (PIRG) Higher Education Project, more students are graduating with student loan debt at higher levels than ever before.
From 1999 to 2000, nearly two-thirds of all students graduated with some type of student loan payments, showing a near doubling of the student debt in the last eight years from $9,188 to $16,928.
The study also reports 39 percent of student borrowers graduated with unmanageable debt levels, meaning monthly loan payments exceed 8 percent of the graduate’s monthly income.
The average duration of federal student loans is 10 years, but for students with unmanageable payments, the debt can last longer, according to the report.
The report analyzed data from the Department of Education’s National Postsecondary Student Aid Study (NPSAS) and only considered federal student loan debt figures. Credit card and private loan debt were not included in study.
According to 2000 NPSAS data, 40 percent of student borrowers carried an average credit card balance of $3,071. From this data, PIRG concluded a federal student loan borrower with a credit card on average would owe $20,000 after graduation, a $3,000 rise from the federal student loan debt figure.
Tracey King, education associate for PIRG, cited the reduction of the Pell Grant program, a shift from using savings to students loans for tuition costs and an unparalleled rate of increase between income and tuition as reasons for the increase in student debt.
“First, the Pell grant, the cornerstone of financial aid for low-income students, has not been able to keep up with inflation and rising tuition costs,” King said. “As a result, low-income students must depend more on loans to pay for college. Tuition has increased at a faster rate than median income, making college more expensive for many students.”
Over the past 10 years the median family income increased by 12 percent, while tuition rates for four-year colleges increased to nearly 40 percent. The numbers are adjusted to inflation.
The report cited certain groups of students as more likely to face unmanageable debt burden after graduation.
In 2000, 71 percent of students from families with incomes less than $20,000 graduated with debt, compared to 44 percent of students from families with incomes of $100,000 or more.
The debt burden divided along ethnic lines as well. According to the report, half of all black and Hispanic borrowers face or will face unmanageable debt burden after graduation.
“Many students do not realize the consequences of the debt they take on during college. Most students understand the importance of college and simply take out the loans they need to pay without a real comprehension of the impact of this debt on their lives after graduation,” King said.
A report released by PIRG called “Big Loans, Bigger Problems” found most students underestimated the impact of interest on their loans, King said. Solutions proposed by PIRG include increasing grant aid funding and allowing repayment flexibility.
“Low-income students are significantly more likely to graduate with student loan debt, and they may face more financial difficulty after graduation. Congress should increase the Pell grant borrowing maximum to help low-income student pay for college without burying themselves in debt,” King said.
King said the best advice for students is “to borrow only what you need.” She also recommends prepaying loans or making accelerating payments whenever possible to reduce the impact of interest over the life of the loan.