Student loan, credit card debt keeps piling up

line graph OBy Kate Ward and Lauren Cook

While it’s undeniable that the amount of college loans is soaring, the government isn’t hurting from it. In fact, the government makes money on college loans, according to the 2011 Federal Education Budget Project report.

“The federal government disbursed $112 billion in student loans in 2012. Most of that will be paid back with interest. The interest rates and fees are set high enough that the government makes money,” Federal Education Budget Project Director Jason Delisle said in a New York Times article published Feb. 27, “Putting a Number on Federal Education Spending.”

The most likely reason for this is that when federal lawmakers think about where to cut government spending, education is usually given a reprieve. The Times article indicated that most education funding comes from state and local governments and accounts for only 3 percent of what the federal government spent in 2012.

“After one year’s worth of loans, the government makes a net gain of approximately $5.5 billion,” Delisle said.

From 2000 to 2010, federal spending on higher education tripled from $64 billion to $170 billion. But tuition rates grew even faster, according to the Buckeye Institute for Public Policy Solutions’ article, “As Higher Education Costs Soar, the Answer is Not More Government Spending.”

Baylor tuition rates were no exception. Baylor tuition from 2007-2011 increased from $22,869 to $29,884 according to the Federal Education Budget Project, which is a 30.6 percent increase.

The Buckeye article also reported that enrollment increased nationally while graduation rates stayed the same and student loan debt doubled.

Some people are in different financial situations at Baylor.

“I will graduate debt-free,” Lufkin sophomore Grace Cho said. “I wouldn’t have come to Baylor if I had to take out loans – federal or private.”

Cho is in the minority. Roughly 90 percent of Baylor students are on some type of financial aid, according to the Financial Aid Office website.

Fifty-eight percent of Baylor students received federal loans in 2011, accounting for an average of $5,602 per student, according to the 2011 Federal Education Budget Project report. Only 9 percent of Baylor students receive loans from private institutions, accounting for $14,096 per student on average.

Another form of higher education spending is grants, which are defined as “gift money” — financial aid students don’t have to pay back. Grants often are need-based. The government doesn’t make any money from grants, according to the Federal Student Aid Office of the U.S. Department of Education.

“Occasionally, you might have to pay back part or all of a grant if, for example, you withdraw from school before finishing an enrollment period, such as a semester,” according to the Federal Student Aid Office.

Grants are about 23 percent of the money given from the government for higher education each year, according to the Federal Education Budget Project. In 2012 the government gave $42.5 billion in grants to students.

Twenty-four percent of Baylor students received Pell Grants in 2011, accounting for $4,076 per student, according to the 2011 Federal Education Budget Project report.

“Grants are great for the students that receive them but not so great for the government,” Baylor alumnus and Waxahachie pastor Jack McDaniel said. “They never get that money back.”

Many prospective college students and freshmen don’t realize the difference between grants and loans.

“To be honest, I don’t know anything about grants or loans,” Liberty freshman Kathleen Bean said.

So grants are the source of government debt in the higher education industry, while federal loans make money for the government – that is, unless the loans aren’t paid back.

And that’s another figure that can add up quickly.

“Cumulative defaults on private student loans exceeded $8 billion, a sum from over 850,000 distinct loans,” according to the Education Department and the Consumer Financial Protection Bureau.

Overall, loans and grants don’t appear to negatively impact the economy, according to the Federal Education Budget Project reports. The real impact is on student lifestyles.

“The real problem here is loan debt,” McDaniel said. “Kids don’t think about what they will have to pay when they graduate. Kids nowadays graduate, can’t find a job – and have hundreds of dollars to pay back in loans.”

Austin freshman Courtney David is worried about her life after graduation.

“Taking out student loans has affected my life greatly,” Davis said. “When I graduate, I won’t be able to fully do everything I love, such as traveling. I’ll be worried about the debt I have to pay off.”

Heath sophomore Jeb Smartt is one of the lucky ones who will graduate debt-free.

“I’m thankful that I won’t be working out of a hole when I graduate. I can start on solid ground,” Smartt said.

Like Smartt, Cho won’t have student loans to repay and will have no debt after graduation.

“I won’t have anything to worry about after graduation, except finding a job. I won’t have to worry about paying back money that I don’t have,” Cho said.

Clearly, loan debt, whether from federal or private sources, can affect students’ budgets and economic status after graduation.

Little Rock, Ark., sophomore Jenna Henrich knows taking loans would affect her economic status.

“It’s going to be hard to pay back all the loans, but there was no other way I could attend college,” Henrich said. “And in my degree field, no education means no job.” Henrich is a pre-physical therapy health science major.

But loans aren’t the only way to accumulate debt. Like tuition, credit card debt among students has risen.

Seventy percent of college students have a credit card, 90 percent of those being a monthly credit card, according to “Financial Literacy and Credit Cards: A Multi Campus Survey” published in the April 2012 edition of the International Journal of Business and Social Science.

The “Financial Literacy and Credit Cards: A Multi Campus Survey” also reported that “of the 70 percent of surveyed college students who carried credit cards, more than one in three of those young people had two or more cards. About half claimed to use the cards only for emergencies, with 13 percent saying they used the cards frequently.”

Gordon Putnam is a credit repair expert with Utah Credit Alliance, which specializes in credit repair and boosting credit scores. He wrote the article “Credit Card Debt Can Harm College Students” for the Standard Examiner.

“The average undergraduate student carries $2,500 in credit card debt, and when they graduate from college they begin their new lives with debt that they can’t pay,” Putnam said in the article. “Lower-than-expected salaries, plus higher-than-expected living expenses and hefty student loan payments, make handling credit card debt all the more difficult for students and recent graduates.”

Credit card debt, along with student loan debt, is becoming a problem with recent college graduates.

“I won’t graduate with much of any student loan debt, but I will have credit card debt,”

San Antonio freshman Kayla Gregg said. “It will be just as hard to pay off as it would be student loans.”

However, some students have chosen not to use credit cards during college.

“I don’t have a credit card because I know I won’t have the means to pay it off once I’m out of college,” Fort Worth sophomore and management information system major Louis Iaeger said. “I most likely won’t have a high-paying job right away.”

Many students, like Iaeger, use debit cards instead of credit cards to steer clear of possible debt. Between the costs and debts that come with higher education, it’s the students, not the government, who are taking the hit.

“The student loans aren’t so great, but my college experience has been exceptional,”

Henrich said. “I’ll be proud to say my degree is from Baylor University—even if it means cringing at the student loan bill every month.”