Students face larger debts for college

Terrell Jones' mother paid for his first two years at Virginia State University, but he expects his last two will leave him $30,000 in debt.

Jones is confident that investment will pay off, even as he and other students worry that the worsening economy will make it harder to repay their loans.

A new study underscores those concerns. The Project on Student Debt reports that salaries students earn at graduation are not keeping pace with the increases in what they owe for their education.

The study found that students graduating with loans in 2007 owed an average of $20,098, compared with $18,976 for the Class of 2006. That was a 6 percent increase, while earnings for 18- to 24-year-olds with bachelor's degrees rose only 3 percent over the same period.

Jones, a junior computer engineering major from New York, is hoping to get a scholarship to help pay for his senior year. With that scholarship, he faces a decade of monthly payments of more than $300 after he graduates.

But he's optimistic he'll be able to find a job when he graduates and is already looking at job prospects. "I think I'm going to be on my feet," he said.

Still, he expects the job market to tighten.

"It's going to be harder to make opportunities for yourself," he said. "But you shouldn't let that hold you back from your dreams and your aspirations."

Virginia students fared somewhat better than the national average in The Project on Student Debt report. The average debt for graduates of Virginia public and private schools was $18,084, up from $17,207 in 2006.

Virginia State University made the report's list of high-debt colleges. According to the report, the state-supported school's 2007 graduates had an average debt of $28,250.

But Henry DeBose, VSU's assistant vice president for student financial services, said that amount is overstated.

VSU last week completed its own study and found the average debt for the class of 2007 was $19,571, DeBose said.

He points out that the report acknowledges data limitations in compiling loan information, which is voluntarily supplied by colleges.

DeBose said discrepancies could result from how questions were phrased, making it possible parental debt, for example, might be included in the student total.

But he agreed with the report's estimate that 90 percent of VSU students graduated with debt in 2007.

Under a standard repayment plan, he said, a VSU student owing the average of $19,571 would make payments, with interest, of $222 per month for 10 years.

Cindy Deffenbaugh, director of student financial aid at the University of Richmond, said the reported loan average of $19,214 for 2007 UR graduates was "in the ballpark."

While UR caps student loans at $4,000 annually based on demonstrated need, families might still borrow more to meet their expected family contributions, Deffenbaugh said.

Schools with sizable endowments can do much to help minimize or eliminate student debt.

UR has a program providing full tuition, room and board for Virginia residents with family incomes under $40,000. Currently, 41 students are attending UR under that program, Deffenbaugh said.

The Project on Student Debt says because of data limitations, average debt is likely to be higher, not lower, than it reported. It estimates the average to be about $1,800 more than the $20,098 national average for public and private colleges. The report says borrowers attending public schools likely graduated owing $19,400 in 2007, while private school graduates owed $25,700.

A similar report last month by The College Board found that family income, federal loans and grant aid have failed to keep pace with college costs, resulting in more students turning to private bank loans with higher interest rates.

Like mortgages, student loans are pooled and sold as securities.

Sallie Mae, which purchases student loans on the secondary market, is close kin with mortgage finance giants Fannie Mae and Freddie Mac. Their financial troubles have raised fears of tight credit for students, resulting in the federal government's decision to purchase student loans from private lenders to shore up the market.

But some student and consumer advocates oppose helping private lenders unless students with those loans received new protections as well.

The Project on Student Debt and eight other groups sent a letter to Treasury Secretary Henry M. Paulson Jr. last week objecting to his plan to use taxpayer dollars to aid private loan providers. Among those protesting Paulson's plans were Consumers Union, the American Association of State Colleges and Universities, and the U.S. Student Association.

Lauren Asher, associate director for The Project on Student Debt, said private lenders have created "a misplaced panic" that students will be unable to get the loans they need when in fact safer, federal loans are widely available.

While federally backed loans have lower interest rates and repayment safeguards for students, private loans can have rates that are two to three times higher and are aggressively marketed much like credit cards, she said.

But under the 2005 bankruptcy act, people struggling with high student loan debts do not have the same protections as those with other types of consumer loans.

In July, the government increased the annual amount of money students can obtain under the federal Stafford loan program, which provides subsidized loans for students with financial needs and unsubsidized loans for others.

DeBose said that has helped students this academic year. So far, he said, he has yet to see an increase in students in financial distress. But the real test will come between mid-December and mid-January, when spring semester bills are due.

"We are seeing students having to work more, if they can find employment," DeBose said.

Carmen Caldwell, a senior majoring in industrial and logistics technology at VSU, has $14,000 in Stafford loans.

She has a plan to delay repayment on her loans when she graduates next spring — graduate school. The Stafford program allows students to defer payment while they're in school or in some public-service jobs.

"I would prefer to take a year off just to relax and breathe," she said.

As Congress considers plans to help other sectors with economic troubles, Caldwell thinks the government should find ways to help students, too. She'd like to see a wider range of community-service options for deferring or reducing payments.

A Varina High School graduate, Caldwell came up with her own strategy to keep down her debt.

Her loans covered her freshman and sophomore years. She qualified for scholarships and grants to help pay for her final two years.

"I just raised my grades to lower the debt," she said.

Karin Kapsidelis is a staff writer at the Richmond Times-Dispatch.