NCPA - National Center for Policy Analysis


September 8, 2009

Students are borrowing dramatically more to pay for college, accelerating a trend that has wide-ranging implications for a generation of young people.  Federal student-loan disbursement -- the total amount borrowed by students and received by schools -- in the 2008-09 academic year grew about 25 percent over the previous year, to $75.1 billion.  The ripple effects for today's heavily indebted young people are becoming palpable, says the Wall Street Journal.

A growing body of research suggests that tough loan payments are affecting major life decisions by recent graduates, forcing them to put off traditional milestones -- from buying a first home to even marriage and having children.

Also, the rising levels of borrowing may ironically be contributing to the accelerating cost of college, says the Journal:

  • Loans can give colleges an artificial sense of a family's ability to pay tuition; that false sense of security gets built into the assumptions schools make when setting prices.
  • The idea is that as prices rise, families borrow more and more, spurring prices to rise further, which in turn requires more borrowing.
  • These and other impacts are likely to continue to spiral for future generations of tuition payers, but it's unclear whether we have seen the worst of it.
  • The rate of increase is predicted to 12 percent for the 2009-10 school year due mainly to a rebounding economy.

However, raised limits in federal loans may have siphoned some borrowing away from riskier private loans.  The move away from these risky loans may be one bright spot in an otherwise frenzied student credit environment.

Nevertheless, attacking the problem of cost is thorny because it is politically difficult to get all the interested parties to agree.  Also, colleges can be big employers in congressional districts, making it challenging for politicians who represent them to also take them on, says the Journal.

Source: Anne Marie Chaker, "Students Borrow More Than Ever for College," Wall Street Journal, September 3, 2009.

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