Do Recent College Graduates Regret the Amount of Funds Borrowed for Educational Purposes

With the cost of education continuing to rise at a rapid rate, it is more important than ever to look at loan options, loan sources, and the long run repercussions faced by students seeking an education in today's society. The government created a financial aid system to help disadvantaged students receive need-based financial assistance and also to provide assistance to middle class families through a guaranteed loan system. Loans are by far the largest source of aid even for the lowest income students that receive other financial assistance. (Gladieux and Hauptman 1995) This loan system has grown to encompass over one half of all available student aid (Gladieux and Hauptman 1995) and the amounts students borrow for an education continues to increase at astonishing rates. From 1989-90 to 1995-96 the total undergraduate Stafford Loans had increased from $2 billion to $17 billion. (Berkner, 2000) "An American Council of Education (ACE) study found that borrowing under federal loan programs for graduate and professional students at 347 institutions rose an astounding 47% between 1992 and 1994." (Kobliner 1995, p. 108). Between 1994 and 2000 (estimated figures), funds utilized for student loans increased from a total of $24.7 to $31.6 million dollars representing an increase of 27.7% over the period (U. S. Dept. of Education, Office of Postsecondary Education, unpublished data). In light of this rapid growth in student loans, students need to be aware of their loaning options in order to find the loans that best suit their needs and they should be aware of the responsibilities they assume when borrowing in order to complete their educations. Loan Sources Two kinds of federall loan programs exist, one being the William D. Ford Federal Direct loan also known as the "direct loan". Under this type of loan, the funds are lent directly by the U.S Government to the students. Another source of funding is the Federal Family Education Loan (FFEL) Program. The funds for this program are provided from banks, credit unions, or other lending institutions, but are guaranteed by the, U.S. Government. FFEL loans are used only if the school does not participate in direct loans. (The Student Guide from the U.S. Department of Education 2001-2002, pp. 1-2). Several different types of loans are offered by each of these programs. Forms of Student Loans Stafford Loans Both programs offer Stafford loans. They can be either "subsidized" or "unsubsidized" loans. Subsidized Stafford loans are awarded on the basis of financial need, which is determined by calculating the student's Cost of Attendance and subtracting from this amount the Expected Family Contributions (EFC). This results in the amount of financial need to be provided by a loan. (The Student Guide, p. 6). Students are not charged interest on subsidized loans until they have been out of school for any reason for six months. The government also pays the accruing interest for all grace periods, forebearances, and deferments. (The Student Guide, p. 12). Unsubsidized Stafford loans, on the other hand, are non--financial need based. They begin accruing interest at the time the disbursement is made and the student is responsible for payment of this interest. Dependent undergraduate students (still supported by parents and reported to IRS as a dependent) can only receive unsubsidized Stafford loans with a four year total amount of $23,000. An independent undergraduate student is eligible for a four year total of $46,000 in Stafford loans, of which only $23,000 may be in subsidized loans. Graduate students are eligible to borrow up to $18,500 per year or a total of $138,000 over their entire college career including undergraduate loans. Only $8,500 of the $18,500 per year and only $65,500 of the $138,000 total amount may be in subsidized loans. The interest rates for Stafford loans fluctuate with t-bill rates, but they cannot exceed 8. …