There's Always a Payback Time Students Taking out More Federal Loans for More Money, but Many Are Defaulting

Article excerpt

Greg McGovern bucked the odds in his first two years of college.

He worked enough, and saved enough, to put himself through

school without borrowing. But when he enrolled full-time,

McGovern followed a familiar path.

He took out a federal student loan. In his case, the $9,000

loan is unsubsidized. Interest will accumulate at 8.25 percent

over the remaining year of his enrollment at the University of

North Florida. And he likely will have to take out another loan

next year before graduating with a sociology degree.

"It bothered me, but it's a necessity," McGovern said.

His assessment is backed by a variety of federal statistics.

The most recent data shows more American students are turning to

federal loans to finance their educations, and borrowing

substantially more than their predecessors.

And while recent data shows the overall rate of defaults on

student loans is dropping, students who attended traditional

twoand four-year colleges are defaulting in greater numbers.

The increase in indebtedness, outlined in a report released

last month by the American Council on Education, is outpacing

tuition increases.

In 1995-96, the most recent year available, 52 percent of

students who received bachelor's degrees from a four-year public

institution obtained a federal loan. On average, they borrowed

$11,950.

Just three years before, only 35 percent of such students

obtained loans. And they graduated with an average debt of

$7,400.

The trend may be attributable to congressional actions to

broaden eligibility for subsidized federal loans, increase the

limits and create a new unsubsidized loan program for all

students, regardless of income. In an unsubsidized loan,

interest accumulates as soon as the loan is authorized.

"Loan programs have changed themselves, making it much easier

for students to borrow," said David Merkowitz, director of

public affairs for the American Council on Education.

At the same time, grant opportunities have remained about the

same. The maximum Pell Grant, which was flat for years, will

increase next year to $3,000, he said.

For students like McGovern, borrowing is the only way to

finance a college education. Others, like fellow UNF student

Michelle Vandewal, find other options. Although she receives

reimbursement for military service, she borrowed from her

parents to cover the up-front tuition and fees.

Many people she knows, however, are several thousand dollars in

debt already. Subsidized federal loans give graduates six months

to find a job before the payments must begin, and the interest

is covered while the students remain in school. Many students do

not realize how much they've borrowed until the first payment

hits.

"Before you really realize what you've done, you're into it,"

Vandewal said.

The national default rate for federal student loans has dropped

significantly from its high of 22.4 percent in 1990 to 10.4

percent in 1995, the most recent year available. But the rate is

somewhat misleading. The default rate varies tremendously among

degree programs.

Students who attended proprietary and other skill-specific

schools, such as beauty schools, default in far greater numbers

than traditional college students. …