Despite the credit crunch and all that it entains – fewer jobs, lower wages, less general credit availability – the costs of attending college and the amount of money students are borrowing has continued the trend of rapid growth.  The Wall Street Journal reports that the amount of money students borrowed through the Department of Education is up over 25% from last year.

Good News in the Bad?

Its obvious that rising tuition and a weak economy have contributed to a rise in student borrowing, but there is a factor to be considered beyond the total amounts being lent.  There’s a big difference in the interest rates of federally funded student loans and private, bank-issued loans.  The subsidized federal loans are currently charging 5.6% and unsubsidized loans taken directly from the government are at 7.9%.  In comparison, most private loans charge interest rates over 10%, and many require a co-signer since first-time students rarely have a stable credit history.

So, although borrowing from the government has exploded, the actual gain in total student debt is less rapid.  Many of the banks involved with private education lending have gotten caught up in the credit crunch and have little left to lend – others would like to avoid making any kind of loans in the middle of a financial crisis.  Private loans to students are risky afterall – despite the laws designed to protect lenders, the rates of default and repayment are actually pretty low compared to other types of loans like mortgages and corporate debt.  Unfortunately, many students spend more than their degree’s earning potential will be able to pay back, and the banks don’t really take those factors into consideration when they are hunting for customers.  As the growing risk and lack of liquidity pushes more private banks out of the student loan picture, students will actually end up saving quite a bit of money.

Now About that Tuition…

The root of the student debt problem is the cost of tuition and the lack of available employment for young workers.  These issues don’t have simple solutions and the majority of students will have to choose between borrowing against their future income or not attending college at all.  I tend to think that school is still worth it, but its more essential than ever to take advantage of the programs and resources providing money for college tuition and expenses.  Between financial aid, scholarships, grants, and even contests, there’s no reason to pass up free money opportunities – even if the odds of being selected in any one program is low, you can leverage multiple angles to improve your chance of getting some kind of financial assistance for school.

7 Responses to “Student Loans Hit Even Higher Records”

  1. Yes,I have a question. I am stuck between a rock and a hard place. I owe my former school money, about 5,000 dollars worth. I cannot get transcripts so that I can enroll in nursing school until I pay them back. What would be a good way to find money to pay them off so I can go back to school.

  2. As the interest rate from the government is low,definitely the number of student who will aply for a loan will be more in a government organization than in private institutions.I totally agree onm the fact that the higher cost of tution is the main cause for this loans. People are spending a lot of money on their private tution and after they get job they are not even getting more salary to componsate that.

  3. Well, its logical students get more loans than last year. Because many of them have parents hardly hit by the economic crisis. Think of it as a weird domino effect.

  4. I dont think student loans are ever a good idea. They usually have a much higher interest rate than other loans and often have many hidden terms. I think we should be encouraging students to get part time jobs and save for their studies instead of borrowing.

  5. It seems as though the problem with student debt has been an everlasting one. But is it not always the case? You usually do not have a lot of money while studying – and tends to take on loans in order to get everyhting to work properly. However once you get settled you can easily pay those back.

  6. I have an old student loan that i’ve been paying like forever. If some of these students had any idea how tough it is to pay them they would think twice about borrowing so freely.


  1. Save money for school without doing much at all

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