Student Loans

Student loans are a form of financial aid that must be repaid with interest. They are available in three major categories: student loans, parent loans, and private student loans. A fourth type could be the consolidation loan, which allows the borrower to lump all of the other loans together into one easy payment.

Student loans include Stafford and Perkins loans that are subsidized by the federal government. Parent loans are PLUS loans that enable parents to borrow to help their children finance their education. And private student loans are all other alternatives available to finance educational expenses through private banks and other sources.

The reality is that few students can afford to pay for college without some form of financing. Two-thirds of four-year undergraduate students graduate with at least some debt. The average student debt among graduating seniors is $19,237, excluding PLUS loans since those are owed by the parents. Meanwhile, average accumulated debt has increased by about 3% - or $550 – per year.

Graduate and professional students tend to borrow even more with the average additional debt ranging from $27,000 to $114,000 for them. The highest rates are for medical students, where 95% of them borrow money with the average debt at graduation being $125,819! Coming in at a close second place are law students, of which 89% borrow and end up owing around $80,754 when all is said and done.
Recently, the market for student loans on Wall Street has hit a snag and caused some concern that future loans may be more difficult to obtain. The credit crisis of 2007-2008 has dramatically limited the number of buyers for such loans and left lenders with an inability to originate loans. This is a big problem as many low-income students rely on such loans to finance their education since they don’t typically qualify for private loans.

Luckily, the government may be stepping in with a series of new proposals to help boost the market. The House and Senate are proposing that the Department of Education be given the ability to create a secondary market for illiquid student loan securities while limits on PLUS loans and others would be increased in order to further assist students.

In the end, student loans can be a tricky road to navigate. Education is increasingly necessary in today’s economy, but the expense is quickly rising to a level that may be unsustainable. Luckily, the government is now stepping in to solve some of the more immediate problems, but the future is still very cloudy.