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American Teacher December 2003/January 2004--Speak Out
Should student loan limits be raised?
YES Congress must increase federal student loan limits so Americans have the financial resources to attain their postsecondary education dreams. Opponents of raising loan limits have valid concerns about mounting student debt, preferring increases in student grant programs. I agree, but they just aren’t facing several realities. By fiddling with existing annual limits and failing to increase aggregate limits, opponents refuse to recognize that many students will not have adequate resources to obtain their education. Loan limits now are inadequate—$2,625 for freshmen, $3,500 for sophomores, $5,500 for other undergraduates, and $8,500 for graduate students. Freshman loan limits were last raised in 1986. Loan limits for all other borrowers were last raised in 1992. The reauthorization of the Higher Education Act that Congress is currently tackling will extend program authority until the end of this decade. Any level-headed observer would agree that 24 years in the case of first-year students and 18 years for other borrowers is an unreasonably long time without a loan limit increase. Recently, several higher education associations joined several lender associations to form the Coalition for Better Student Loans. Our soup-to-nuts loan reform proposal:
These loan reforms best serve students who need to borrow to get a postsecondary education, and they address certain realities. The reality students and their families face is that congressional reauthorization can do little to immediately increase grants because these programs are discretionary. Congressional reauthorization can directly increase federal loan limits because these programs are mandatory. Increases in grant funding can only be achieved through the annual appropriations process. The reality is if we don’t increase federal loan limits, borrowers will run up credit cards or get alternative loans from banks to pay for college. These are choices we find disgraceful. Alternative loans with much higher interest rates cannot be consolidated at historically low interest rates; neither do they have the attractive federal loan benefits such as cancellation for teachers, interest rate and origination fee reductions, and federal subsidies such as in-school deferment. Everyone wants increased grant aid, but credit financing will remain a primary source of paying for school. Increasing loan limits faces reality, while not doing so will limit educational opportunity for needy students. Larry Zaglaniczny is director of congressional relations for the National Association of Student Financial Aid Administrators.
NO While few students borrowed money 30 years ago to finance their college education, the practice is nearly ubiquitous today. Federal education loans can play an important role in helping many individuals finance college. However, as part of the goal of affordable higher education, Congress has a responsibility to ensure that students do not leave school saddled with unmanageable student loan debt. In answering the question of whether federal loan limits should be increased, the most important factors to consider are not the number of years since the limits were last raised, nor even the rate at which the price of higher education has increased. Rather, we need to evaluate the impact that student loan debt has on recent college graduates and set a threshold that provides for manageable repayment. The average undergraduate borrower left school with nearly $17,000 in federal education loan debt in 2000; low-income students took on even greater debt, $20,000 on average. Given that the student loan industry recommends devoting no more than 8 percent of one’s monthly income toward loan repayments, the average recent college graduate’s salary of $30,000 is barely enough to fit that threshold. As a result, 39 percent of recent college graduates make monthly student loan payments that exceed the recommended manageable level. Although higher education is supposed to open doors for graduates, excessive student loan debt can limit a borrower’s freedom and opportunities. According to a recent report by Nellie Mae, increasing numbers of student borrowers are negatively affected by their loan debt. In 1997, about 40 percent of borrowers (up from 25 percent in 1991) said their debt had caused them to delay buying a home; 31 percent (compared to 16 percent in 1991) said they had delayed purchasing a car due to their student loan indebtedness. Increasingly high debt signals that college is neither affordable for students while they are in school nor even after they graduate, when large numbers of them spend more than 20 years repaying student loans. Raising federal loan limits would only encourage students to take on greater levels of loan debt. After federal loan limits were raised in 1992, and the unsubsidized borrowing market was opened to students, the average student loan debt doubled over the next eight years. Rather than exacerbating student debt, we should be encouraging Congress to take steps to truly make a college education more affordable. Increased investment in grant programs, not bigger debt burdens, is the key to a more accessible and affordable road to higher education. Kate Rube is the higher education advocate for the Public Interest Research Group, a citizen-funded alliance of state organizations that lobby in the public interest.
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