There are many times I wish I were back in college. This is not one of those times. I worry I could have ended up like the recent college grad I profile in Wednesday night's piece on the "CBS Evening News with Katie Couric." Alex Guzzetta has $90,000 in student loan debt, $70,000 owed to private lenders. He says he never realized when he took out the private loans that he'd be facing a 10 percent interest rate and a minimum payment of more than $500 a month for 30 years. Forget about buying a better car or an engagement ring for his girlfriend. As he told me, he's just getting by.
I remember the days of trying to cobble together funds to pay for college. I managed to cover tuition with financial aid, federal loans and work study programs. There weren't many private loans available then -- or at least, I didn't know about any. Had there been as many offers as there are today (you can see them just by googling student loans on the internet), I worry I would have been motivated by the possibility of getting thousands of dollars quickly. Would I have read the fine print and realized those loans would severely impact my lifestyle and my job decisions once I graduated?
Private loans are now the fastest growing part of the student aid industry. There are many kids like Alex who need to take out the loans but don't realize what their obligations are going to be. There are also many students, one in five according to a recent study, who don't exhaust their federal - and cheaper - options first. Right now, federal loans include a fixed 6.8 percent interest rate - a rate that will drop by 50 percent in four years - while private loans have a variable and higher interest rate.
Last year, financial aid administrators at Barnard College became so concerned about the number and volume of private loans that they started a new program, calling every private loan applicant. The result? 98 students were taking out private loans before the calls, afterward just 39 were -- a 60 percent decrease.
Clearly, students need more information -- from financial aid administrators and from the lenders. Senate Banking Committee Chairman Senator Christopher Dodd (D-CT) has proposed a bill requiring private lenders to provide more details to students about what they'll actually have to pay. But the onus has to be on the students as well. As a representative of the private lenders put it, "The borrower is the person who is on the hook." Students need to make sure they shop around for loans, compare loan terms, exhaust less expensive options and know their obligations when they sign on the dotted line.
The stakes are high. Just think of Alex, an accountant, who knows his numbers. Not a day goes by, he told me, when he doesn't think about how one third of every hour he works is going towards interest payments on his student loans. That's not at all how he expected his post-college life to begin.