-
1 of 10
-
2 of 10
-
3 of 10
-
4 of 10
-
5 of 10
-
6 of 10
-
7 of 10
-
8 of 10
-
9 of 10
-
10 of 10
Report: More students taking out loans resulting in debts
Archive
Higher education doesn’t come cheap, and according to a new report the cost is becoming more than some students can handle without taking out loans.
Because grants are not keeping pace with the rising cost of college education, more students are turning to loans. As a result, more students are graduating with an alarmingly high level of debt.
A report released by the U.S. Public Interest Group’s (PIRG) Higher Education Project indicated many students do not understand the implications of the debt they take on. As a result of not understanding loan repayment and loan costs, students sometimes borrow more than they can afford and experience difficulty repaying their loans.
The PIRG said most graduating students experience “sticker shock,” when they find out their debts are much larger than they expected. As a result, students sometimes end up defaulting on their loans and facing other financial problems.
“In this economy, a college education is the best investment you can make in your future,” said Ivan Frishberg, director of the project.
“But with big loans come big problems. Students are forced to take out student loans to pay for college, but most will end up with significant sticker shock when it comes time for repayment.”
According to the report, about eight out of 10 students underestimate their debts. In a survey of more than 1,000 students, PIRG found that 78 percent underestimate the long-term cost of their loans and graduate with $4,846 more debt than expected.
Two factors that lead to sticker shock are underestimating interest and overestimation of student’s expected income when graduating, according to the report.
“In general, students overestimate their expected income. Whereas the average income for recent college graduates is $27,000, students reported an average expected income of $39,016,” the report said.
The report entitled “Big Loans, Bigger Problems: A Report on the Sticker Shock of Student Loans” also found that over a recent three-year period, the numbers of students graduating with debt over $20,000 nearly doubled. In the last decade, the amount of money borrowed in the form of Stafford loans has also more than doubled from $15 billion to $35 billion.
Those students most likely to fall into the trap of growing debt are freshmen, sophomores and low-income students who underestimated their debt more significantly than their peers, the report said.
Students, especially those in the first and second years of college, are borrowing without an understanding of their consequences of debt, and larger debt only compounds the problem, the PIRG said in a press release.
Some students agree with the research findings and said they don’t know the size of their loans.
Wes Miller, a senior majoring in business logistics, said he was part of the group that had no clue about his loans when he first signed for them.
“I’m fortunate enough to be graduating with less than an $8,000 debt,” Miller said. “Had I known that I would be taking out a lot of money, I would have researched it more.”
Miller also said he thinks there should be more information on grants, possible scholarships and loans so students are aware of all the options available to alleviating their debts.
Jennifer Kelleher, a graduate student in economics, said she understands her loan information well, but thinks others don’t because they choose to ignore it.
PIRG encourages students to know their options and learn about their loans early. Different loans are more expensive then others and repayment plans vary in levels, which can change the life of the loan.
“Students with high levels (of) debt are already vulnerable to problems repaying their loans after they graduate,” Frishberg said. “Now that we know they don’t realize the severity of their situation, we should be doing a lot more to put a lid on the rising student debt.”
ˇ
Michelle Minon is a reporter with the Daily Collegian at Pennsylvania State University. Article reprinted with permission.