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by Emily

Earlier this week, the House of Representatives passed a "technical corrections" bill that would make several changes to the Higher Education Opportunity Act passed last year.  Most of the changes are minor corrections, such as fixing typos or clarifying language, but the bill also includes two major fixes that would help borrowers if signed into law.

One of the corrections taken up in the bill was a move to postpone the controversial PLUS loan auction program by a year.  Under the auction plan, lenders would bid to service PLUS loans in each state, a move that made much more sense when proposed in 2007 than when enacted in 2009.  Bids for the auction were due this week, but so far it has generated little interest from most lenders and a statement from major lender Sallie Mae saying they had no plans to participate.  Congress hasn't scrapped the plan entirely, but tabling it for a year will hopefully allow it to be revisited under more favorable, or at least different, conditions, and in the meantime will allow parents and graduate students to continue borrowing as normal.

The other much talked about provision would provide relief to people currently repaying their student loans who have defaulted in the past.  The credit crunch has made it difficult for borrowers who are now making payments on time to move out of default and have their credit rehabbed and federal aid eligibility reinstated.  Guarantee agencies have had trouble finding borrowers willing to buy up the rehabbed student loans and allow the default status to be removed from the borrowers' credit.  A provision in the correction bill will allow the federal government to buy up rehabbed loans under the same authorization they're currently using to buy up other loans from student lenders.


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by Emily

While an increasing number of college students received financial aid in the 2007-2008 academic year, that calendar year students also ran up more credit card debt.  The average college student owed $3,173 on credit cards in March 2008, compared to $2,169 in 2004.  This information comes from the student lender Sallie Mae, which has been tracking students' credit card debt since 1998.

The study also found that student credit card debt increases with grade level.  The average freshman owed $2,038 on credit cards, while the average senior owed $4,138.  The money is not just being spent on beer and pizza, either.  According to a supplemental survey by Sallie Mae, the vast majority of students (92 percent) report charging at least one educational expense, such as books, to a credit card.  This figure is also higher than in 2004, as is the percentage of students charging tuition to a credit card, which now stands at nearly 30 percent.  Students reported charging an average of $2,000 in educational expenses to credit cards.

Higher tuition, a poor economy, and difficulty finding private loans may have already pushed these numbers higher for 2009.  With high interest rates and the need to begin repayment immediately, credit cards are one of the worst ways to pay for school.  Scholarship opportunities and federal student financial aid should definitely be explored before students resort to charging tuition to a card.  A variety of grants and scholarships, as well as low interest student loans, can help students avoid credit card debt while in college, and keep their debt from consuming their entire salary when they graduate.  Before you reach for the plastic to pay your campus bills, spend a few minutes doing a free scholarship search.  You may be very glad you did.


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by Emily

Analyses of the data published last week by the National Center for Education Statistics are already starting to emerge.  The Project on Student Debt has announced that a significantly larger portion of students borrowed private loans in the 2007-2008 academic year than in 2003-2004, according to the NCES survey.

Private loan borrowing increased by 9 percentage points, with 14 percent of students now relying on private loans, as opposed to 5 percent in 2003-2004.  Not surprisingly, more expensive schools saw the biggest increase in private student loans.  At for-profit colleges, the percentage of students borrowing private loans increased from 14 percent to 43 percent, while private non-profit colleges also saw a substantial increase.  Overall, 32 percent of students at schools charging more than $10,000 per year in tuition wound up borrowing private loans in 2007-2008.

While the credit crunch may slow the rate of private borrowing in the near future, these student loans still are regarded as the best or only option by some students.  According to the Project on Student Debt's analysis, 26 percent of private loan borrowers did not take out any Stafford Loans first, and 14 percent did not even complete the FAFSA.

Private loans generally carry the highest interest rates and least flexible repayment terms out of all student loans and most experts encourage students to avoid them if possible.  Explore other options for financial aid first, especially grants and scholarships.  You will also want to consider your potential debt loand when choosing a college.  Since students at more expensive schools are more likely to have to borrow private loans, students with limited financial resources should think carefully about the relative merits of a private college as opposed to a state college or community college before committing themselves to private loan debt.


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by Emily

Student loan default rates are rising for both federal and private loans as more recent grads struggle to find work.  The Wall Street Journal reports that the federal default rate is nearing 6.9 percent, the highest it's been since 1998.  Similarly, some private lenders are experiencing default rates that have already nearly doubled in just a year or two.

Loan repayment woes are expected to get worse as tuition continues to rise and the job market remains depressed.  Since student loans cannot be discharged through bankruptcy, borrowers are stuck with their debt no matter what happens.  Add in continued increases in the number of students borrowing to pay for school and the amount they borrow, and student loan defaults are poised to be a serious long-term problem whether or not the economy recovers quickly.

Borrowers do have some flexibility in negotiating their loan repayment terms, especially with federal Stafford Loans.  Borrowers of federal and private loans are also able to apply for a temporary forbearance, halting payments but not the accrual of interest, if they find themselves unable to pay.  However, reduced monthly payments now will mean either larger payments or more payments in the long run.

If you are looking at ways to pay for college, the best strategy is still to avoid student loans to the greatest extent possible.  Do a free college scholarship search and be sure to factor cost and available financial aid into your college search, as well.


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by Emily

Student loans and credit cards make up the two most dangerous, and often difficult to avoid, debt traps for college students.  While some amount of borrowing for college can make life easier for students, too much debt can make life nearly impossible for graduates.  The same goes for credit cards.  Having a card is great for emergencies and your credit rating, but running up a large balance while in college can really hurt, especially for students who were approved during days of easy credit and are now seeing rates soar and credit limits plummet.

However, Congress is working to make things easier for current credit card holders and also to make the choice of whether or not to open a credit account less nerve-wracking for new college students.  Legislation in both the House of Representatives and the Senate seeks to create a "credit card holders' bill of rights," curbing confusing and predatory practices by banks issuing credit cards.  While the bills have received bipartisan support, including a ringing endorsement from President Obama, there is still some concern about possible backlash in the form of even more stringent credit requirements for people who want to open credit card accounts.

Still, picking up a poorly screen printed t-shirt along with a new line of credit with an 18+ percent interest rate is a campus tradition unlikely to be missed by many.  With college students' credit card debt still on the rise as of 2008 and relief from private loans still nowhere in sight, any new consumer debt protection will likely be welcomed by many college students and recent graduates.


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by Scholarships.com Staff

We've previously blogged about the increase in student borrowing shown by the latest data from the National Center for Education Statistics. As more think tanks and other groups begin to analyze this information, additional reports are emerging to provide more details on who is borrowing the most. The latest report comes from Education Sector and bears the title, "Drowning in Debt: The Emerging Student Loan Crisis." While the report has been criticized by some as alarmist in tone, it does provide insight into students' growing reliance on student loans.

In broad terms, the study showed that over half of undergraduate students (53 percent) borrowed money to attend college in 2007-2008, up from just under 50 percent in 2003-2004. Students also took out larger loans in 2007-2008. Adding to the report published earlier by The Project on Student Debt, this report also looked at the percentage of students borrowing private loans, showing a sharp rise in recent years.

The report also breaks down borrowing by type of institution and type of loan, as well as along other lines. Education Sector found that student loan borrowing is most prevalent among students at private, for-profit colleges, with nearly 92 percent taking out student loans in 2007-2008. For-profit colleges also had one of the highest average loan amounts in 2007-2008, with students borrowing $9,611. Private not-for-profit colleges actually had higher average loan amounts at $9,766, but the percentage of students borrowing was significantly lower, though still higher than at public two-year and four-year colleges.

Students at for-profit and not-for-profit private colleges also relied the most heavily on private loans, with 43 percent of students at for-profit and 27 percent of students at non-profit private schools turning to alternate loans. These schools tend to have the highest tuition, so the greater loan amounts and rates of borrowing are not entirely surprising. Rising tuition and a lack of sufficient need-based financial aid (including a shift in focus from need-based to merit-based scholarships at four-year schools) are cited as two of the main causes for high rates of student borrowing.

A more detailed breakdown, complete with charts, is available on the Education Sector website.


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by Scholarships.com Staff

Rising unemployment rates and other symptoms of the ongoing recession continue to drive more people to attend college and look for ways to pay their bills, causing an uptick in state and federal financial aid applications. However, states are also hurting for money to meet financial aid requests and other budget demands. According to the Associated Press, 12 states have made significant cuts to state grant programs so far this year, with additional cuts likely. At least anecdotally, these cuts are already leading to more reliance on student loans, especially among groups that, according to a brief published this week by the College Board, may already be finding themselves overburdened with debt.

This week, the College Board released some new numbers on student debt loads and borrowing habits, culled from the National Postsecondary Student Aid Study, data released every four years by the Department of Education. Students at for-profit colleges are the most likely to borrow (96 to 98 percent graduate with some amount of loan debt), have the largest average debt loads at graduation, and are also some of the poorest college students (students at for-profit schools received 19 percent of the Federal Pell Grants disbursed in 2007-2008 despite making up only 7 percent of the college-going population). With additional sources of need-based aid drying up, these students may find themselves even more burdened with debt.

Students at other types of schools have also had to do more borrowing in recent years, according to the study. A full 59 percent of college students graduate with some amount of student loan debt, including 66 percent of bachelor's degree recipients. While most students took on manageable amounts of debt, 10 percent of students at four-year public schools, 22 percent of students at four-year private colleges, and 25 percent at four-year for-profit colleges borrowed more than $40,000 to attend college.

The average loan debt of undergraduate students in 2007-2008 was $15,123 (this is all students, not graduates), up 11 percent from the last time the survey was conducted. While increases in loan burdens were most modest at four-year state and non-profit colleges, reductions in state grant programs that are often earmarked for students at state colleges or nonprofit private colleges could send these numbers climbing.

You may want to consider statistics on student debt as a factor in your college search, but keep in mind that there are alternatives to borrowing. Scholarship opportunities exist for students at every type of college pursuing many different types of degree programs.


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by Agnes Jasinski

The U.S. Supreme Court began hearing arguments today on the intricacies of one student's 20-year-old debt that could change the way bankruptcy law handles student loan cases.

The case, United Student Aid Funds Inc. v Espinosa, goes back to 1992, when Francisco Espinosa, a technical school graduate, filed for Chapter 13 bankruptcy. Espinosa by then owed nearly $18,000 in not only student loans taken out four years earlier, but interest on those loans to lender United Student Aid Funds Inc. He filed for bankruptcy to relieve him not of his loan debt, but the nearly $5,000 in interest accrued on the $13,000 he initially borrowed. Thinking he had reached an agreement with his lender, Espinosa eventually paid off the principal on the loan over a five-year period.

Several years later, however, he received notice from his lender that he still owed the remaining interest. The lender claimed Espinosa had not sufficiently shown "undue hardship," a requirement under bankruptcy law for students to qualify their student loans under Chapter 13. Espinosa says he fell on hard times when the hours for his baggage handler job through airline America West were cut, and he was unable to find a job that fit his degree in computer drafting and design through the technical college.

That's when the legal battle began. Espinosa won on the bankruptcy court level, but the district courts ruled in favor of the lender and demanded a hearing to show whether Espinosa met the criteria for a bankruptcy filing. The Ninth Circuit Court of Appeals ruled that it was too late for the lender to challenge the filing, which then landed the case in the U.S. Supreme Court.

An article in the Chronicle of Higher Education previewing the case this week looked at the implications of the court's eventual ruling. If the Supreme Court overturns the last appeals court's decision, lenders could feel free to collect back interest on student loans that have already been approved for Chapter 13. If the Supreme Court rules in favor of Espinosa, lenders could be open to abuse by borrowers taking advantage of the law to get out of their student loan repayments. The article suggests that the Court should consider redefining the "undue hardship" criteria to make it easier for judges to apply that criteria across the board, as many say it is already too subjective.

The case is an important one for students, especially in a difficult economic time when college students are not only borrowing more, but having a tougher time finding jobs to make payments on their student loan debt. Student loan default rates are also on the rise for both federal and private loans as tuitions only continue to rise. If you're worried about the amount of debt you'll accrue going to that dream school, consider all of your options. Factor college cost into your college search, and make sure you have a good idea of financial aid and scholarship money available to you before taking out student loans.


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by Emily

Although the economic downturn has changed some borrowing and spending habits, recent college graduates are more in debt than ever before. Average student loan debt has continued its steady rise, with graduating seniors holding an average of $23,200 in student loans in 2008. This information comes courtesy of a report by the Project on Student Debt on average debt for the college class of 2008, the latest in an annual series profiling the previous year's graduating class and the financial situations they face upon leaving school.

As debt rose for graduating seniors, so did unemployment, with the unemployment rate for workers age 20-24 (the typical age range for recent college graduates) now standing at 10.6 percent, the highest on record. This combination of factors is likely contributing to the rising student loan default rates we've seen in the last year.

The highest-debt states include the District of Columbia, whose class of 2008 held an average of $29,793 in student loans, Iowa ($28,174), and Connecticut ($26,138). Six other states also topped the $25,000 mark, compared to only two last year: Iowa and New Hampshire. Utah and Hawaii held onto their low-debt distinctions, once again being the two cheapest bets in higher education, at $13,041 and $15,156 respectively. Other low-debt states for 2008 included Kentucky, Wyoming, Arizona, Georgia, and California, though soaring tuition and reduced state funding may soon bump California off this list.

South Dakota, West Virginia, and Iowa had the highest portion of student borrowers in 2008, with 79 percent of graduating seniors in South Dakota taking out a student loan at least once in their college career. More than 70 percent of 2008 graduates in Minnesota and Pennsylvania also went into debt to fund their educations. Hawaii, Nevada, and Utah had the fewest students borrowing, with 37 percent of students in Hawaii, 40 percent of students in Nevada, and 41 percent of students in Utah graduating with debt in 2008.

In addition to describing trends state-by-state, the Project on Student Debt also looked at debt by college. An interactive state map offers not only pop-ups of the state's average debt and percentage of students borrowing, but also provides a link to a list of data by college, including the percentage of borrowers and the average debt for 2008 where available. The report, available on the Project on Student Debt website, also lists which colleges' graduates had the highest and lowest average amounts of debt.

This information can be especially useful to students currently involved in the college search or college application process. Schools whose students borrow less to complete college often have low tuition, generous scholarship opportunities, or other programs to keep costs down. If you're concerned about paying for school, this can be very appealing.


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by Agnes Jasinski

As a response to "operating in unsettled and ... unsettling times," Williams College has decided to stop offering its no-loan student-aid program and to reintroduce modest student loans to students' financial aid packages.

In an open letter to the Williams community released over the weekend, the school's Interim President Bill Wagner said the change would not affect current students, but beginning with the class that enters in the fall of 2011. Families below a certain income will still not be expected to borrow at all, and other students will be offered loans on a sliding scale up to a maximum size that the school says will still be among the lowest in the country.

Student loans were eliminated at Williams in the 2008-2009 academic year, joining more than 30 private colleges that had adopted similar policies, such as Amherst and Claremont McKenna colleges. (There have already been rumors that Amherst College may join Williams in amending its own policy.) The decision to cut loans out of students' financial aid packages came at a time when the school's endowment had grown so large that there were demands to spend more. But at the same time, more students were applying for and qualifying for financial aid.

Williams isn't the only college to renege on a promise to students, nor is it the first. Lafayette College raised the loan limit it pledged to students from $2,500 a year to $3,500 a year if they had family incomes of between $50,000 and $100,000. Dartmouth College has been requiring loans again for those at certain levels now exempt from borrowing. Endowments across the country have plummeted, suffering their worst losses since the Great Depression. According to an article in The Chronicle for Higher Education published last week, the value of college endowments declined by an average of 23 percent from 2008 to 2009. An endowment student sponsored by the National Association of College and University Business Officers found that of the 654 institutions that reported carrying long-term debt, the average debt load grew from $109.1 million to $167.8 million.

Are "no loans" policies feasible at all? Some critics explain that there are students currently exempt from taking out loans who could easily be able to pay them off once they graduate. Students with family incomes of more than $120,000 have the resources to borrow less than other students, critics say, and the focus instead should be on helping low-income students keep their loan debts at a minimum. Williams hasn't been clear as to what the family income cutoff would be for its new policy, but it will undoubtedly hit the middle class hard.


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