Loans: The Good and the Bad at College

Loans: The Good and the Bad

When a financial aid officer assesses a family's ability to contribute to the cost of education, there is an assumption that education is right up there at the top as a spending priority. But that is not always the case in many families. Ours is a society of spenders, not savers. Many families spend what they make and more. And so the amount of money that the federal government and the college expect a family to contribute is often far more than the family can pull out of current income. Savings from past income is just not there or is designated for other purposes such as retirement or emergencies.

A 2003 survey by the Investment Company Institute found that of all parents saving for college, those with children between the ages of eleven and fifteen had saved a median of only $15,000, barely enough to pay for one year at a public college or university.³ In many families, current income leaves nothing extra after paying the monthly bills, and so that leaves only future income on which to borrow from. And that's why the majority of parents today take out loans to pay the cost of tuition, room, and board. At Harvard, for example, at least 70 percent of students receive financial aid (slightly higher than the 60 percent of undergraduates nationwide who receive some form of aid).⁴ According to loan provider Nellie Mae, the average undergraduate leaves school with a debt of $18,900, up 66 percent from five years ago.⁵

The Nellie Mae survey found that over half of all graduates with debt feel burdened by that debt.⁶ In fact, apparently the burden of college loans strongly influences the plans of many graduates. "There's no way I can go to grad school after I graduate," says Joyce with a laugh tinged with regret. "My parents owe so much money already; I can't ask them to borrow any more. And besides, I think they'd kill me if I even hinted that I wanted to stay in school." The results of a 2002 National Student Loan Survey found that many students are facing the same dilemma: 42 percent of college graduates who did not go on to graduate school said their student loans had a major influence on their decision to head toward the job market rather than toward graduate school.⁷