Student Debt

INTRODUCTION

This report examines the increasing trends in the amount of debt students are graduating with. The purpose of this report is to prove why these trends need to be stopped, and how they can be stopped. After viewing the statistics from 1993 to the present it will be obvious that student debt is not rising at a steady pace, but that its growth is leading to large financial burdens by many students. Recommendations are given about the actions that can be taken by not only students, but everyone to help improve this dire situation. The changes that student loans have been through over the last couple of years will have a lasting effect on current students, prospective students, parents, and those who have graduated and expect to help their children in college.

The statistics in this report come from various academic programs and programs devoted to improve student debt situations. There are limitations to the survey conducted about the effects student debt has on students. This is due to the limited number of students who were confidentially surveyed at Iowa State University only. A more thou rough study would need to be conducted to further conclude our findings.

To stop the rising debt dilemma a list of activities is given including:

* Voicing opinions

* Lobbying for legislative acts, increase in grant programs, and lender reform programs

* Use of student services

* Student responsibilities

* Schools responsibilities

BACKGROUND

Student Loan Statistics

In order to understand why changes in student debt areas are necessary, one must understand the changing trends in student loans and credit cards. Since 1993 student debt averages have rose from $9,250 to 19, 200. Accounting for inflation, this is a 58% increase! In 1993 there were fewer than half of the graduating seniors (of 4 year institutions) who carried student loans, compared to two-thirds of today's graduating seniors who will have student loan debt. Of these seniors, in 1993 1.3% owed at least $40,000, but now 7.7% owe at least this much (see Figure 1 on next page). To think of these percentages as number of students will show what a dramatic increase this is. The number of students who have this much debt went from 7,000 in 2003 to 77,550 currently.

Source: Project on Student Debt

Figure 1. Number of Graduating Seniors with Debt Exceeding $40,000

Although the above figures are nationwide, Iowa in particular, sets a poor example of the above statistics. Iowa's public universities are ranked number one in the nation for the largest amount of average debt at $23,198 and the overall average debt for both public and private colleges is ranked number two nationwide at $22,727. These statistics show why everyone, Iowan's above all, need to push reform programs to help alleviate the current debt situation (Project on Student Debt, "High Hopes, Big Dreams").

The typical college undergraduate student expects to take out student loans, and even many see credit cards as a necessity. Iowa State University's estimated cost of attendance for one year of in state tuition is $17,170 and $27,920 for out of state residents (Iowa State University). Many students will be employed while in school, but as a full-time student, are only capable to work so many hours. They will barely be able to pay for housing, not including tuition and book expenses.

Student Credit Card Statistics

Today's undergraduate students are using credit cards more often. Not only do they have access to their parent's credit cards, they are using credit cards in their own names. There are now 56% of undergraduate students who have at least one card in their name. One out of 4 of these students will carry a month to month balance with $1,000 being the median. Out of those one quarter will carry a balance of more than $2,500 (see Figure 2 ). As students progress from freshman to seniors, the likelihood that they will carry more than one credit card increases. By the senior year(s), 24% will have three or more credit cards. Numerous students will use these credit cards, with higher interest, to pay for their tuition. This could be a matter of convenience due to things such as online registration systems at some colleges. Other scenarios include students exhausting the lower cost methods of paying for tuition such as student loans or payment plans (American Council on Education).

Source: American Council on Education Issue Brief - July 2006

Figure 2. Credit Card Ownership and Behavior of Traditional-Age Undergraduates

ANALYSIS OF CAUSES OF INCREASING DEBT TRENDS

Reduction in Student Aid Programs

Student aid programs are being cut. The Pell Grant, which is set at $4050 per year for qualifying students, is suffering. Because of the lack of increases in the Pell Grant, the buying power of this grant is decreasing. It no longer is able to keep up with inflation rates (Talia Berman).

Increases in Interest Rates

In February, 2006, the Deficit Reduction Act passed through legislation. This act would ultimately cut $12 billion from federal student aid. This act increased interest rates on student and parent borrowers. The Stafford Loan interest rates rose from 5.3% to 7.14% on existing loan and 6.8% on any loans taken out after this act passed (Talia Berman). What this act did do was lower income taxes to those that made more than $1 million!

Rising tuition

Over the past five years, tuition has risen by 40%. Since the 1970's, tuition has actually tripled. When comparing the increase over the past five years to the increase in consumer prices, which only rose by 9%, the exaggerated tuition increases show through (Talia Berman). There are some necessary reasons that tuition should rise, but some view how schools are spending student's money as unnecessary. Schools have shown a shift in their spending towards expensive research or student services such as residence