If you’ve got a high school senior about to put in applications for college, you won’t be surprised by the latest news about college costs.
In its annual look at trends in college pricing, the College Board reported that the average tuition at four-year public and private colleges is up again. Prices have risen 35 percent from five years ago, after adjusting for inflation.
If you’re a parent of a college-bound student, there were two other facts in the College Board report that shouldn’t be overlooked – it is taking longer for students to graduate, and an increasing number of students are turning to high-priced private loans to pay for college.
Among bachelor’s degree recipients in 1999-2000, the College Board said in its report, those who began their studies at four-year public colleges and universities took an average of 6.2 years to earn a degree.
Those who began at four-year private institutions took an average of 5.3 years to graduate.
Part of the reason it is taking so long for students to graduate is the cost. Tuition and fee charges at four-year public colleges are averaging $5,836 this academic year. That’s a $344 increase over last year, or 6.3 percent. Add in room and board for in-state students at public institutions and you’re looking at $12,796.
Tuition and fees at four-year private colleges average $22,218 in the current academic year. That’s an increase of 5.9 percent. The total cost including room and board is $30,367.
Let’s say your child doesn’t get a full scholarship or grants? How will you pay for his or her college education?
Federal loans, you say.
Did you know the maximum limit for the main federal loan program is $23,000? (By the way, that limit has not changed since 1992.)
That cap is a big contributor to the huge increase in private student lending, says Mark Kantrowitz, publisher of FinAid.org, which is one of the most useful Web sites on this issue.
The proportion of student loans borrowed through banks and other private lenders, as opposed to the federal government, climbed to 20 percent of all education borrowing in 2005-06. Five years ago, private loans made up only 12 percent of all borrowing; 10 years ago it was 4 percent. Now the amount loaned out in the private market is $17.3 billion.
Since 2000, this portfolio of loans has been growing at an average annual rate of about 27 percent in inflation-adjusted dollars, according to the College Board.
Private loans are not guaranteed or subsidized by the government. They typically carry higher interest rates than federal loans, especially for students with poor credit histories or no history at all. Rates vary by lender so you have to really shop around. When I searched, I found private loans that ranged from 7.6 percent to as much as 9 percent.
Students get a better loan deal under the federal student loan program. In the case of a Stafford loan, students taking out new loans can borrow at a fixed rate of 6.8 percent. These loans are either subsidized or unsubsidized. In the case of a subsidized Stafford loan – awarded on the basis of financial need – the government pays the interest while the student is enrolled in school.
With an unsubsidized loan, the student is responsible for the interest payments. Interest on unsubsidized loans begins accruing immediately, unless you decide to defer the payments until after graduation. Most students take this option, in which case the interest is tacked onto the loan. This, of course, increases the cost of the loan. All students, regardless of need, are eligible for the unsubsidized Stafford loan.
Here’s something many students and parents of college-bound students probably don’t know. Starting in July 2007, the total yearly limits a dependent undergraduate student can borrow in unsubsidized or subsidized Stafford loans are:
* $3,500 if you’re a freshman, up from the current limit of $2,625.
* $4,500 if you’re a sophomore, up from $3,500.
* $5,500 if you’re a junior or senior.
Also in 2007, freshmen who are declared independent (in other words, financially responsible for themselves) or whose parents have been turned down for a PLUS loan – a parent loan for undergraduate students sponsored by the government – can borrow an additional $4,000 for an annual limit of $7,500. A sophomore who falls under either of those categories can borrow up to a max of $8,500 a year. The annual limit is $10,500 for juniors and seniors under the same circumstances.
In case you miss the implication of the loan limits, let me spell it out. In all, your child can only borrow a total of $23,000 through the Stafford federal student loan program for his or her undergraduate study.
Considering this cap, many families will end up with a shortfall and will need to borrow someplace else.
So my advice, as you are sitting down with your child now to consider his or her college choices for next year, take into account how much you may be forced to borrow and how long your child will take to graduate.
Factoring in those two things might (and really should) dictate where your child applies for college.
Washington Post Writers Group
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