Burden of College Costs Gradually Shifting to Students

The New York Times recently reported that more and more students are taking on the burden of paying for their own college educations – typically by taking out educational loans in their own names.

Financial aid officers at colleges and universities nationwide agree there is a gradual shifting of loan burdens from parents to students. College costs have risen to the point where even upper-income parents have to choose between supporting a child's college education and meeting other responsibilities such as supporting elderly parents and saving for retirement. Many students are covering the gap between what their families can provide and what their chosen college costs by taking out educational loans from private banks.

Educational loans from private banks represent the fastest-growing segment of higher education funding. Observers believe that much of this increase consists of loans to students rather than parents, since parents are eligible to apply for federally-supported PLUS loans that offer much more favorable terms. Private loans typically have higher interest rates than federally-supported loans do, and some private lenders even allow interest to accrue while a student is still in school.

Loans are a legitimate and often valuable way of paying for an education whose returns include increased job prospects, higher income, and greater life satisfaction. However, there is reason for concern that students do not always appreciate how much of a burden they are taking on when they take out tens of thousands of dollars in loans. Loan repayments that start falling due after graduation easily amount to hundreds of dollars a month. That burden can force a young person to put off other life goals for years and limit their ability to change jobs, start a family, or pursue graduate education.

If you do decide to use loans to finance your education, research your options carefully. Compare the packages offered by different lenders. Get a good estimate of what the total loan repayment will amount to.

Don't allow yourself to settle for what seems the easiest or most accessible package for right now. With loans, convenience comes at a price. The time and hassle you spare yourself today by signing up for another $20,000 in debt at the bank with a handy on-campus branch may wind up costing you additional tens of thousands of dollars and lost opportunities over the next 20 years.

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