STUDENT LOANS » College Financing

New reports show that students are relying on federal student loans to finance their college tuition as private student loans become more difficult to obtain. The reports, issued by the College Board, show that private loans fell a whopping 52 percent in the 2008-2009 school year as a result of the financial crisis along with tightened credit standards.

Private student loans are traditionally more difficult to obtain than federal loans because of their higher interest rates and stricter guidelines for approval. It is for this reason that they are typically a last resort for students who don't qualify for the financial-need driven federal loans. With that being said, students still took out an estimated $22.8 billion private loans in the 2007-2008 school year; however, by the next school year, that number dropped to $11 billion.

To offset the drop in private student loan availability, the federal government attempted to boost student lending in government programs. As a result, federal loans jumped 15 percent in volume, making the total number of federal student loans in the 2008-2009 school year $84 billion. It also helped that as parents lost their jobs, they were able to qualify for a broader spectrum of student loan options for their children.

But even with President Obama pumping funds into non-repayable federal financial aid like the Pell Grant, it seems students still don't have enough to work with due to tuition increases. According to the College Board reports, the average tuition at four-year public colleges and universities in the United States rose 6.5 percent in the 2009-2010 school year to $7,020, while tuition for private institutions rose 4.4 percent to $26,273.

So now students, just like unemployed workers, are left scratching their heads as they try to work their way through a system that, while deemed a necessity, seems to lack the resources necessary to successfully participate.

Have you or your child had difficulties obtaining private student loans this school year?

Did you go to college to increase your earning potential, but end up saddled with debt instead?

Those struggling to repay their federal student loans recently gotten a break. As of July 1, 2009 The U.S. Education Department changed the terms of student loan repayment to allow borrowers to adjust their monthly payments according to their income. Previously, the monthly repayment amount was fixed and determined by the lenders.

Not only did repayment terms get tweaked, Education Secretary Arne Duncan noted the interest and fees associated with student loans will decrease.

The good news continues with the announcement that the U.S. Education Department will release $13 billion in grants from the fiscal 2009 federal budget for schools in low-income areas. Duncan also said graduates who dedicate their lives to working for the public school system or nonprofit organization and originally borrowed through the Direct Loan program can have their balance forgiven after 10 years.

Many of these changes were fueled by lobbying efforts by the Institute for College Access and Success. The Berkeley, Calif. non-profit group wanted the change as many times students graduate with mounds of debt that cannot easily be managed.

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But...

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