Every college student and their family realize that paying for college is a major obstacle and even though the problem of college cost and graduate debt is being talked about in the media and the government, still the cost of college and the average debt continues to rise. The Institute for College Access & Success collected data from 1,057 public and private nonprofit colleges and found that 2/3 of college seniors in 2011 averaged $26,000 of student loan debt. There was great variation between and within states concerning average debt per graduate. However, several trends emerged. Schools located in the Midwest and Northeast have higher average debt, while schools in the West and the South are lower. Private nonprofit colleges have higher average debt than public schools, but there are exceptions caused by factors such as financial aid endowment resources, financial aid packaging policies, and cost of living in the area. It is thought that private for-profit colleges have the highest debt but they are not obligated to share their figures so that data was not available for this study.
There are many factors that contribute to this problem with debt and paying it off upon graduation. When choosing a college, most students and families judge the affordability of each school based on the tuition but don’t consider the full “cost of attendance” which includes cost of books and supplies, living expenses, transportation, and other miscellaneous personal expenses, which can significantly increase the cost of attendance. In terms of loans, federal loans are typically easier to pay off than private loans, which make up about 1/5 of student debt. These private loans have higher interest rates and don’t have basic consumer protection and flexible repayment methods like federal loans do. However, many financial aid offices do not offer counseling to educate students on federal aid availability and some even include private loans in their preliminary financial packages. The majority of undergraduates who take out risky private loans have not used up all of their available federal loan options. Finally, once students graduate, they are faced with a difficult job market and a bad economy, making it difficult to pay all of these loans back.
The unemployment rate for 2011 undergraduates is 8.8% and many of those with jobs are considered underemployed; out of the graduates who wanted to work full time 19.1% were either part-time or had given up looking for a job, and 37.8% of the employed graduates held a job that didn’t require a degree. While a college degree gives graduate a better chance than those with only a high school degree, these employment difficulties make it very difficult for grads to pay off their loans in time.
This report made by The Institute for College Access & Success summarized some recommendations from their national policy agenda to address rising student debt. First, they suggest improving and promoting tools that allow students and their families to better assess and compare the affordability of different colleges, such as a college scorecard, net price calculator, and a “shopping sheet”. Also more data needs to be collected on debt at graduation for each college and other statistics. This data would be collected straight from the lender so that the borrower can see all their loans in one place and assess their total student debt. They also want to reduce the need for students to borrow by offering more need-based grant aid and tax credits, which will hopefully reduce the amount of risky private loans that students get. Financial aid offices should also offer counseling so students are aware of all their options and don’t miss out on opportunities for federal loans that are easier to pay off and educating them on helpful repayment options, such as income-based repayment. Hopefully with progressive ideas like these the average student debt will finally start to decrease, giving even more people the opportunity to a college education.
Reference: Reed, Matthew and Debbie Cochrane. “Student Debt and the Class of 2011”. The Project of Student Debt. The Institute for College Access & Success. October 2012, Washington D.C.