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Thursday, 9th July 2009

Drowning in Debt: The Emerging Student Loan Crisis

Drowning in Debt: The Emerging Student Loan Crisis
Source: Education Sector

Higher education has never been more expensive. The price of attending a public university doubled, after inflation, over the last two decades, and family income and student financial aid havenít kept pace.1 As a result, students have no choice but to borrow, and more college students are borrowing more money than ever before.

But a new analysis of federal financial aid records reveals more than just surging debt levels. Students are taking on more of the riskiest debt: unregulated private student loans. Here, students have the least protection and pay the highest rates. For-profit colleges are leading the way in this trend, and minority college students appear to be borrowing a disproportionate share. If this continues, the consequences will be severe: reduced access to higher education, diminished life choices, and increasing rates of catastrophic loan default.

There are many culprits to this emerging student loan crisis: out-of-control tuition increases, lack of commitment to need-based financial aid, and states and universities increasingly spending scarce financial aid dollars on wealthy students. President Obama recently proposed reforming the federal student loan program by having all students borrow directly from the government. The money saved from this change would go to making Pell grants, which are targeted to the neediest students, an entitlement. The new plan would also tie annual increases in Pell grants to inflation. This is a good start to solving the problem of rapidly growing student debt, but much more needs to be doneófrom reforming state and institutional aid policies to creating better incentives for colleges to restrain prices.

Based on recently released data from the U.S. Department of Educationís National Postsecondary Student Aid Survey (NPSAS) and an analysis of the past 15 years of NPSAS data, the following charts show just how much higher education debt is increasing, as well as identify several reasons for the surge and what steps policymakers can take to help students attend college without drowning in debt.



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