More loans, more debt for grads
Today's students who take out loans for their undergraduate education are facing the same debt burden as their counterparts did seven years ago, according to a recent study released by the National Center for Education Statistics (NCES). Higher salaries (after adjusting for inflation) and lower payments (relative to the amount borrowed) appear to be the major reasons why there was no increase in debt burden.
Although the percentage of students taking out loans and the amounts of these loans were higher among the recent group of students, the monthly debt burden was about the same for both groups analyzed. Monthly debt burden is defined as the graduate's monthly income divided by his or her monthly student loan payment. In both cases, only 7 percent of income went toward paying off student loans.
"This study looked at a period of time in the mid-90s to the end of 2000 when wages were rising and interest rates were falling," says Matt Hamill, senior vice president, advocacy and issue analysis, at the National Association of College and University Business Officers (NACUBO). "The concern for the higher education community is what would happen to students when wages are not increasing or interest rates are rising. If you look at [student debt burden] in another five or six years, we could see something different."
Also, with Congress considering the reauthorization of the Higher Education Act, legislators may decide to not allow students to lock in fixed interest rates on consolidated loans. Although it saves students money, the federal government pays a hefty sum for it. It cost about $2.1 billion to subsidize loans made in fiscal year 2003, said Cornelia M.Ashby, director of education, workforce, and income security issues for the U.S. General Accounting Office in a testimony before Congress in March.