Thursday, February 22, 2007

How Much College Debt is too Much?

Students are increasingly having to borrow money to pay for their education. As someone who has worked in education as well as borrowed to pay for my own schooling, I generally say that student loans are good deals. The interest rates are fairly low (you can lock in rates as low as 4% presently, but that doesn't mean you will always be able to do so) and the time and flexibility you have in paying them back is abundant. However, as debt loads continue to increase (PDF), it is pertinent to examine how much debt is too much.

According to the College Board report linked to above, for 2003-04 college graduates, the average debt students incur is $19,300. According to the report, however,

"Despite median debt levels of under $20,000, 23 percent of borrowers from private nonprofit colleges and 14 percent of those at public four-year colleges graduated with $30,000 of debt or more. Forty percent of those who graduated from four-year programs at for-profit institutions had this much debt. On the other hand, 38 percent of bachelor’s degree recipients from four-year public colleges did not borrow at all and another 30 percent had less than $10,000 in debt when they graduated."

Reports of students going into what some might call obscene levels of debt are not uncommon. What drives students to incur so much debt in order to get a college education? Imagine that you really want to go to Name Brand University and in order to do so, you will have to borrow copious amounts of money. You will probably ask yourself at some point if the degree from said University is worth it. However, your borderline obsession with getting a degree from Name Brand U may blind you to the reality of what it means to owe $50,000. Additionally, as the USA Today article points out, students don't just borrow to pay for education costs, they also end up borrowing from credit card companies to subsidize their outside spending. Instead of being on the hook for $50,000, students may instead owe $60,000 when you include credit card debt (an entirely different, less forgiving type of debt).

The federal government is mulling increasing the Pell Grant, but in reality, any increase will have little effect on borrowing. College costs (tuition, books, room and board) have "risen 81 percent, more than double the inflation rate, between 1993 and 2004" (NYT). It is therefore important to consider what you feel is a tolerable level of debt. The articles I referenced in this post can give you some perspective on what other students have borrowed, how they are coping with it, and what you can do to minimize overburdening yourself with loans.

1 comment:

excelsior said...

There's an excellent Loan Calculator on finaid.org to help people figure out what it's going to cost them to borrow. I've used it with studenst for years.

http://www.finaid.org/calculators/loanpayments.phtml

Finaid.org is a great site overall but this is the page I've used the most often.