Borrowers Need Our Help More Than Ever

Recently released federal data provides a new profile of student borrowers, confirming increased borrowing through federal student loan programs. The report, from the National Center for Education Statistics at the U.S. Education Department’s Institute of Education Sciences, is entitled “Trends in Undergraduate Borrowing II: Federal Student Loans in 1995-96, 1999-2000, and 2003-04.” Some key findings include:

• The percentage of dependent students who borrowed the maximum federal loan limits climbed to 73 percent in 2003-4 from 57 percent in 1995-6, while for independent students the figure rose to 36 percent from 13 percent.
• Borrowing of unsubsidized loans more than doubled, to 21 percent from 10 percent of all undergraduates, between 1995-6 and 2003-4. The percentage of undergraduates borrowing subsidized loans grew more modestly, to 26 from 22 percent, while the percentage of all undergraduates with both subsidized and unsubsidized loans doubled as well, to 15 percent from 7 percent, over that period.
• In 2003-4, 72 percent of undergraduates at private, for-profit institutions borrowed federal loans, compared to 11 percent of undergraduates at public 2-year schools, 42 percent of those at public 4-year schools, and 53 percent of students at private, non-profit four-year institutions.

What does this new data tell us? First, students are borrowing more money than ever. Second, a greater portion of the loans these students are eligible for are unsubsidized, not the subsidized loans that are interest-free while borrowers are in school. Third, attendees of proprietary schools are particularly likely to take out loans to fund their educations.

We also know that growing numbers of students have come to rely on private loan programs to cover costs beyond the federal loan limits. Fueled in part by concern over the availability of such loans resulting from the ongoing turmoil in the credit market, Congress is now considering several proposals to increase federal loan limits. While increases may enable some students to replace costlier alternatives with more favorable federal loans, many voice concern that increased limits could lead students to borrow more than they actually need.

As federal borrowing rises, with or without loan limit increases, so does the obligation of the federal government to make financial literacy a real priority of its federal aid programs. (For a discussion of this issue, check out our Policy Perspectives blog.) After all, seeing students borrow the maximum amount of federal loans is a natural fact of rising tuition costsyet it means that these students will graduate with a greater debt burden than their older siblings. They will need our help to manage their repayment and avoid default.

With a whopping 72 percent of students at proprietary schools borrowing federal loans, this population certainly will be in need of our guidance. These borrowers must know what to do in case they leave school without finishing their program, take a leave, or drop to below half-time enrollment, triggering their grace period and repayment. Additionally, federal loans only make up a piece of the debt picture for these students: Many turn to private loans to cover their total cost of attendance and so will face even higher monthly loan payments after school. These students will be looking to the student loan industry for holistic repayment solutions that take their entire education loan debt into consideration.

And, with the economy looking shaky, borrowers may find it trickier than ever to achieve steady, successful repayment. Student loan borrowers may encounter periods of un- or underemployment, face foreclosure on their homes, or amass credit card debt during rocky periods. They will need our guidance to understand their rights and responsibilities, create a solid and sustainable financial plan, and ultimately steer clear of default.

Do the NCES statistics reflect the trends you’re seeing at your institution? What other challenges have arisen for your students this year? How do you feel about proposals to increase federal student loan limits? How can we increase students’ understanding of the choices they face and their consequences as they piece together funds for their education costs? We’d like to hear from you!

Posted by Michael Ryan on April 18, 2008 at 02:08 PM EST

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