High-priced student loans spell trouble
Tuesday, 2 October 2007
The near doubling in the cost of a college degree the past decade has produced an explosion in high-priced student loans that could haunt the US economy for years.
While scholarship, grant money and government-backed student loans - whose interest rates are capped - have taken up some of the slack, many families and individual students have turned to private loans, which carry fees and interest rates that are often variable and up to 20 per cent.
Many in the next generation of workers will be so debt-burdened they will have to delay home purchases, limit vacations, even eat out less to pay loans off on time.
Kristin Cole, 30, who graduated from Michigan State University's law school and lives in Grand Rapids, Mich, owes $150,000 in private and government-backed student loans. Her monthly payment of $660, which consumes a quarter of her take-home pay, is scheduled to jump to $800 in a year or so, confronting her with stark financial choices.
"I could never buy a house. I can't travel; I can't do anything," she said. "I feel like a prisoner."
A legal aid worker, Cole said she may need to get a job at a law firm, "doing something that I'm not real dedicated to, just for the sake of being able to live."
Parents are still the primary source of funds for many students, but the dynamics were radically altered in recent years as tuition costs soared and sources of readily available and more costly private financing made higher education seemingly available to anyone willing to sign a loan application.
Students with no credit history and no relatives to co-sign loans (or co-signing parents with tarnished credit) were willing to bet that high-priced loans were a trade-off for a shot at the American dream. But high-paying jobs are proving elusive for many graduates.
"This is literally a new form of indenture ... something that every American parent should be scared of," said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.
More than $17 billion in private student loans were issued last year, up from $4 billion a year in 2001. Outstanding student borrowing jumped from $38 billion in 1995 to $85 billion last year, according to experts and lawmakers.
Rocketing tuition fees made borrowing that much more appealing. Consumer prices on average rose less than 29 per cent over the past 10 years while tuition, fees, and room and board at four-year public colleges and universities soared 79 per cent to $12,796 a year and 65 per cent to $30,367 a year at private institutions, according to the college board. — AP
While scholarship, grant money and government-backed student loans - whose interest rates are capped - have taken up some of the slack, many families and individual students have turned to private loans, which carry fees and interest rates that are often variable and up to 20 per cent.
Many in the next generation of workers will be so debt-burdened they will have to delay home purchases, limit vacations, even eat out less to pay loans off on time.
Kristin Cole, 30, who graduated from Michigan State University's law school and lives in Grand Rapids, Mich, owes $150,000 in private and government-backed student loans. Her monthly payment of $660, which consumes a quarter of her take-home pay, is scheduled to jump to $800 in a year or so, confronting her with stark financial choices.
"I could never buy a house. I can't travel; I can't do anything," she said. "I feel like a prisoner."
A legal aid worker, Cole said she may need to get a job at a law firm, "doing something that I'm not real dedicated to, just for the sake of being able to live."
Parents are still the primary source of funds for many students, but the dynamics were radically altered in recent years as tuition costs soared and sources of readily available and more costly private financing made higher education seemingly available to anyone willing to sign a loan application.
Students with no credit history and no relatives to co-sign loans (or co-signing parents with tarnished credit) were willing to bet that high-priced loans were a trade-off for a shot at the American dream. But high-paying jobs are proving elusive for many graduates.
"This is literally a new form of indenture ... something that every American parent should be scared of," said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.
More than $17 billion in private student loans were issued last year, up from $4 billion a year in 2001. Outstanding student borrowing jumped from $38 billion in 1995 to $85 billion last year, according to experts and lawmakers.
Rocketing tuition fees made borrowing that much more appealing. Consumer prices on average rose less than 29 per cent over the past 10 years while tuition, fees, and room and board at four-year public colleges and universities soared 79 per cent to $12,796 a year and 65 per cent to $30,367 a year at private institutions, according to the college board. — AP