Parent loans on the rise to cover college costs
November 16, 2009 —
Regardless of the economy, students are still building debt. What’s changing is the way debt accumulates.
According to recent studies, SVSU parents are borrowing more to pay for their children’s education.
The 2009–10 academic year has already tied up an estimated $4 million in parent loans, double the total for all of 2008–09.
The surge in parent loans reflects the increasing difficulty in obtaining loans from outside sources, says Robert Lemuel, director of SVSU’s Office of Scholarships and Financial Aid.
“Students are finding it harder to get loans through banks,” Lemuel said. “So when they max out their limits, the parent will take out a parent loan to cover the rest.”
Through the first three months of the academic year, more than 1,000 parents have applied for such loans. In contrast, during the complete 2008– 09 school year, only 650 parents took out these loans.
Despite this, the average debt from federal loans for University students has only moderately changed, sitting at about $18,000, up from about $16,000 several years ago.
Even with the increase in borrowed sums, the average SVSU student debt remains lower than national figures. According to recent figure reported by a National Postsecondary Student Aid Study report, the average debt for a college student is more than $23,000.
More than 6,000 students rely on some sort of student loan through the University, totaling more than $30 million so far in the 2009–10 academic year.
Although more students are depending on loans to trek their way through college, loan caps enforced by the University prevent severe student debt.
Dependent freshmen (the ones still listed on tax forms as relying on another person for financial support) are limited to $5,500 in federal loans for the school year. Dependent sophomores are limited to $6,500 a year, while juniors and seniors can max out at $7,500.
Financially independent students are allowed an additional $4,000 per year.
In total, dependent students are allotted a maximum of $31,000 in student loans over the course of their college career, whereas independent students are allotted a cap of $57,000.
But by SVSU’s own projections, these caps only offer a portion of what both dependent and independent students should expect to pay each school year.
The University estimates an annual cost of $14,854 for dependent students taking a full load of 31 credits. Independent students can expect to pay an average of $16,699 per academic year.
Private loans, such as those through banks, are subsequently a necessity for some students to make up the differential between loan caps and the annual cost of schooling.
More rigid restrictions on private loans, however, have complicated this process.
Although the University has no way to track the number of private loans its students take out, Lemuel says 578 students have reported taking out such a loan for the current school year. He says students reported about 1,500 private loans for the 2008–09 year.
Unable to secure these private loans as easily, many students must now turn to alternative solutions, such as the parent loans or additional grants and scholarships.
Some students may continue to seek other loan options, though Lemuel advises them to exercise caution when doing so.
“Students need to be careful with loan scams,” he said. “It’s important that they are aware of the interest rates and understand them before they jump into anything.”