Friday, November 21st, 2008

Students become more dependant on loans

Most current students don’t consider post-graduation income when borrowing money for college.

By Andy Greenhaw

Thursday, September 18th, 2008

Julie Connolly learned the hard way about the importance of planning ahead before borrowing money to pay for college. The KU alumnae works at Headmasters in Lawrence where she’s working to pay off the $35,000 debt she carried with her when she graduated five years ago. She pays about $214 per month, but only $50 of that pays down the actual balance while the rest covers the monthly interest.

“My goal is to pay back all of my student loan debt by the time I’m 40 years old,” she said in an interview last spring. “But I’ll probably be paying back at least some sort of debt for the rest of my life.”

Connolly isn’t alone. According to a new study released by Gallup Poll, 70 percent of students who enrolled in college this year didn’t take their post-graduation income into consideration before borrowing. It also found that 37 percent of students and 46 percent of students’ parents never take tuition costs into consideration when going through the process of finding a college and financing tuition.

The study also breaks down how the average student finances his or her tuition. It found that, on average, students financed 40 percent of their education from student loans, 10 percent from their personal income and savings, 32 percent from their parents, 15 percent from scholarships and 3 percent from relatives and other support groups.

Patricia Christel, a spokesperson for student lending giant Sallie Mae, said the purpose of the study was to provide insight into the attitudes, choices and concerns of American families on how they plan and pay for college. The study, she said, surveyed 1,400 students and parents.

C.E. Andrews, Sallie Mae’s president and CEO, said the study illustrated that too many students were borrowing money without considering how they would pay it back.

According to the KU Office of Financial Aid’s most recent estimates, the total cost of living and tuition at the University of Kansas is about $60,000 for an in-state KU student who started attending the University in 2005 and plans to graduate this year. For out-of-state students, it was about $90,000. It estimates that the average cost of living and tuition for KU freshmen that plan to graduate in four years has risen to about $72,000 for in-state students and about $113,000 for out-of-state students.

“Too few parents and students are focusing on the total cost of college,” Andrews said in an e-mail, “Not enough students are using available college savings tools.” Many students, he said, aren’t exhausting other options, such as financial aid and federal loans, before turning to private loans.

Federal loans come with 6 percent interest rates – the lowest rate on the market.

Students who receive financial help from their parents are allowed to borrow up to $31,000 in federal loans. Students who are financially independent from their families can borrow up to $57,500 in federal loans. In both situations, only $23,000 of those loans is subsidized – interest doesn’t start accruing until after graduation. Any amount borrowed over $23,000 will start accruing interest as soon as the money is borrowed.

If a student needs more money than the government will lend, they must turn to private lenders, which offer higher interest rates that are usually unsubsidized. Students can borrow as much money as these private lenders are willing to lend them, although the recent economic downturn has forced many lenders to adopt stricter lending policies. According to finaid.org, borrowers must now have a credit score of at least 650 to qualify for a private student loan.

Andrews said students could visit the Sallie Mae Web site for tips on how to navigate the financial aid system.

“We council customers to follow a ‘1-2-3 approach’ to paying for college so they exhaust grants and scholarships, explore federal loans and fill any gap with private education loans,” he said.

— Edited by Arthur Hur

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