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Reasons for the growth in student loans.

While there is high concern about rising student debt levels recent information shows that much of the increased borrowing took place due to the expansion of the loan programs rather than the growth in college costs. Many of the new student loans came from middle and upper-income families.

What has led to this increased use of student loans? And is the rising indebtedness hurting the students’ futures? Let’s take a look at three examples why the borrowing has increased.

First, student’s financial need has increased as educational costs have grown and more of this is met by loans. Second, increases in federal grant aid have not kept up with rising educational costs thus, widening the gap between college and compelled students who need the aid. Third, increases in the maximum of loan limits grew and the ease of borrowing have allowed more students to receive loans.

Examining the spread of cost.

Growth in educational costs does not explain the increase in the borrowing. Amounts grew much faster than upper-income students’ showed financial need. Financial need is defined as the difference between students’ and families’ total educational costs and the estimated amounts they can afford.

These results seem to tell us that much of the growth in borrowing can be credited to the changes made in the Higher Education Act, the federal law that governs the financial aid programs. This law increased the annual and maximum amounts students could borrow.

Most of this growth has been through the Stafford Unsubsidized Loan program. The amount of unsubsidized loans more than tripled, rising from $4.1 billion to $12.9 billion.

At the same time, subsidized loans grew 40 percent from $12.5 billion to $17.5 billion. Now students may receive unsubsidized loans regardless of their families’ incomes.

Middle and upper-income families, who might not have been qualified before for need-based Stafford Subsidized Loans especially, became eligible to receive these loans due to the changes made under the Higher Education Act.

What the present loan repayment represents.

For most students borrowing is a wise investment because it allows them to obtain a higher education and increases their chances of success in employment and wages.

And these borrowers who received bachelor’s degrees from four year public colleges and universities, their monthly loan repayments are approximately 4.4 percent of their starting salaries.

Additional examples are computer science majors, their monthly repayment would be 4.5 percent of their wages, and education majors would be 8 percent of their starting salaries. Students from medical, dental and other professional degree programs face debts of far over $100,000 or more.

The worse picture of all is the student who leaves after acquiring the loan without obtaining a bachelors’ degree. They often end up with lower incomes and yet still have to repay their loans, which makes it so much more difficult.

The financial aid office or the lender determines the eligibility. But only YOU can determine how much money you will really need to borrow. As part of your financial aid package you will be offered a maximum amount you can borrow. Here is where one of the main problems enters.

Most students will take the entire package, increasing all fees, interests rates and the amount of return payments due monthly. Thus, the need for additional loans will also go up. And the repayment obligation for these students becomes much more difficult.

As a good rule, accept the least amount that you can get by on from any student loan. And pay it back as quickly as you can. Make sure payments are on time and make any small additional payments if possible.