A student loan education
DaVina Hoyt would rather not know the exact tab of her student debt.
The 34-year-old Washington State University doctoral student’s college career has followed a tortuous path, from a bachelor’s degree at the University of California-Berkeley, to two other California schools, and finally to the College of Education in Pullman. At each step of the way, Hoyt has racked up student loans.
She doesn’t know the exact figure, but she’s confident she will owe more than $100,000 by the time she receives her doctorate.
“I strategically decided I didn’t want to know, because I was at a point at Berkeley where I shut down,” Hoyt said. “That’s why I’ve been able to continue, because if I looked at the numbers I wouldn’t be here.”
As college costs skyrocket, students are taking on record amounts of debt to pay for their education. According to the Center for Economic and Policy Research, nearly two-thirds of students attending four-year public colleges or universities will take out student loans, for an average debt burden of $17,600 at graduation.
And now, the federal student loan program is set for a major overhaul. In legislation aimed at reducing the deficit, Congress carved nearly $12 billion – about a third of the bill’s total savings – out of the federal student loan program in February.
The changes likely won’t affect Hoyt – they apply primarily to loans taken out after July 1 and Hoyt now has an assistantship to help pay her bills. But current and future college students should know what’s in store for student loans.
Supporters argue that the changes will slow the growth of mandatory expenses while offering new opportunities for students who need it most. Opponents counter that the partisan legislation – which passed by razor-thin margins in both the House and Senate – is really a vehicle to push the burden of Bush tax cuts onto students and parents.
The reality is far murkier. Student advocacy groups have criticized a provision that will switch interest rates from variable to fixed rates in July. The change will mean a sharp increase in rates – but they would have risen anyway and the fixed rate could guard against future increases.
Likewise, supporters tout an increase in loan limits for first- and second-year and graduate students, the first such increase in more than a decade. But the aggregate limits are unchanged, meaning students likely will hit their maximum loan limits more quickly.
The government will earn the most revenue through a provision that targets private lenders. Under current law, these lenders are guaranteed a certain interest rate. If the rate paid by students falls below that level, the government makes up the difference. But if students pay more than the guaranteed rate, lenders had been able to keep the difference.
Under the new law, that extra money will be funneled to the federal Treasury. Student advocates say that money should be used to benefit students.
“It’s a series of missed opportunities,” said Luke Swarthout, of the Public Interest Research Group. “That money could have gone toward lower interest rates, better consolidation options or better repayment plans.”
Mark Kantrowitz, publisher of the financial aid assistance Web site finaid.org, described the changes as “one step forward, four steps back.” “They’re giving back $4 billion, but taking away $16 billion,” he said.
Jill Strait, spokeswoman for Rep. Cathy McMorris, R-Wash., who voted for the deficit reduction bill, said the changes would save money while providing new opportunities – such as opening up new loans for graduate students and instituting loan deferments for members of the military.
“Overall, the bill makes reforms to ensure that the people who really need the money are the ones who get it,” Strait said.
In the student loan market, federally guaranteed loans take up the greatest share, although private loans are catching up as the cost of college increases. The U.S. Department of Education estimates it will make or guarantee $60 billion in loans in 2006.
The most popular student loan is the Stafford loan, which under the previous system had a variable interest rate that was adjusted each year based on Treasury bills. On July 1, the Stafford loan will move to a 6.8 percent fixed rate from the current 5.3 percent variable.
A spokeswoman for the Department of Education said the rate likely would have risen above 6.8 percent under the current formula, and the fixed rate will guard against further increases. Kantrowitz said the historical average Stafford rate is 6.4 percent, so the fixed rate represents a small increase.
More substantial is the increase to PLUS loans, which parents take out to pay for their children’s education. The new law will make graduate students eligible for those loans for the first time.
The rate for PLUS loans had been set to rise in July from 6.1 percent to 7.9 percent. Under the new legislation, that rate will be 8.5 percent – a full percentage point higher than its historical average, Kantrowitz said.
“The bottom line is, changes in interest rates are going to cost students money,” Kantrowitz said. He estimated that an undergraduate with $20,000 of debt would pay $2,500 more during the life of the loan under the new rates.
The deficit reduction legislation also establishes science and math grants for eligible undergraduates. But the grants target only about 500,000 of more than 5 million recipients of Pell Grants – the government’s major source of direct financial aid to low-income families.
“Global competitiveness is more than supplying a small number of students with math and science training,” Swarthout said. “It’s educating a broader section of population more deeply.”
The maximum Pell Grant has been held flat for four consecutive years and is proposed to stay that way for a fifth. A spokeswoman for the Department of Education said the grants reach more students each year. But as individual awards lose their purchasing power compared with inflation, students are forced to take out larger loans.
“It’s not as though students are somehow flush,” Swarthout said. “The average middle-income student is still falling short of affording a public institution.”
Part of the problem lies with the skyrocketing cost of college. Average tuition and fees have increased 40 percent during the past five years, as states have cut higher education funding and moved the costs to students, Swarthout said.
Since the 2001-02 school year, tuition at WSU has increased 42 percent to $5,077. In the same time period, Eastern Washington University has seen a 49 percent increase to $3,609.
At the same time, demand for a college education is increasing. The United States will experience its largest high school classes ever in 2008, and record college enrollments in 2011, said Brett Lief, president of the National Council of Higher Education Loan Programs.
The combination of increasing cost and demand means student debt levels will likely continue to rise.
“This is not just a student issue,” Swarthout said. “It’s a serious federal public policy issue. It affects the young labor force and affects global competitiveness. We need Congress to take this seriously.”
Darlene Hendrickson, director of financial aid at Gonzaga University, called the new legislation “a mixed bag,” but said the priority is saving the Perkins Loan program.
In the hierarchy of student loan programs the Perkins Loan is at the top, thanks to its low interest rates and extensive forgiveness and cancellation provisions. The Bush administration has proposed for the third straight year to eliminate the program in its fiscal 2007 budget.
The administration has called the program “inefficient and duplicative of the other, larger federal student loan programs.” A Department of Education spokeswoman said the new grants would make up for the loss of the Perkins Loan.
But representatives from area colleges say Perkins is a vital part of their student aid and would be difficult, if not impossible, to replace. McMorris worked last year in Congress to save the loan program and is trying to do the same again this year, her spokeswoman said.
Hendrickson said the Perkins Loan program lends about 1,000 Gonzaga students a total of $2.5 million each year.
One of those students is Whitney Lyons, 19, a sophomore from Davenport. Lyons funds her entire college education through scholarships, grants and loans. She borrows the maximum annual amount – $4,000 – from the Perkins Loan program.
“If Perkins is gone, that would really make it hard for me because it’s a big part of my funding for school,” Lyons said.
She said she may have to transfer to a less expensive school or put her education on hold if she loses Perkins funds, and she is still figuring out how the new legislation will affect her other loans. One thing is for sure: She plans to consolidate her loans before July to lock in the current low interest rate. A provision in the legislation forbids consolidating loans after July 1 while the student is still in school.
Lyons, a business major, expects to graduate with $40,000 to $50,000 of debt. A work-study student in the financial aid office, she understands well the impact that debt could have on her future. But she said the value of her education outweighs its cost.
Hoyt, the WSU doctoral student, was the first member of her family to attend college. She came from a low-income family and was responsible for almost all of her college costs at Berkeley, supplementing her loans by working 20 to 40 hours each week.
After graduating, she attended graduate programs in California, changing her focus several times. But things changed when her son, now 3, was born. Hoyt is planning for a career in education administration.
“When I had my son, I didn’t have a choice – I had to get the most (education) that I could get, which is a Ph.D,” she said. “If you don’t get the education, you won’t be able to climb the economic ladder. But if you do, you’re stifled by the loans.”