More students are borrowing to complete college and student debt levels continue to rise vastly faster than the rate of inflation and personal income, according to a new report by The Institute for College Access & Success (TICAS).
The average student who borrowed graduated with $29,400 in debt in 2012 (the latest year for which statistics are available), a 10.5 percent hike from the $26,600 average debt in 2011, according to the report. Where 68 percent of graduates borrowed to complete college in 2011, 71 percent borrowed in 2012.
Over the four year period from 2008 to 2012, average debt levels rose by 6.6 percent, according to the report.
Private loans, which are criticized for being more costly and less flexible than federal student debt, account for about one-fifth of all outstanding student debt, according to the report. As in past years, these loans were frequently taken out when borrowers had the option of getting lower-cost federal student loans instead, even though experts say private loans should only be used as a last resort.
It is important to note that federal student loans, unlike private student loans, have options that allow students to repay based on what they can afford, rather than a fixed payment schedule. In an era of rapidly escalating student loan balances, those repayment options are pivotal in ensuring that graduates are not crushed by college debt. Moreover, federal loans have fixed interest rates, while private loan rates are usually variable and can dramatically rise in cost when interest rates tick upward.
"Despite discouraging headlines, a college degree remains the best route to finding a job in this tight market. But students and families need to know that debt levels can vary widely from college to college," said TICAS president Lauren Asher. "If you need to borrow to get through school, federal student loans are the safest way to borrow. Whatever you earn, income-driven plans like Pay As You Earn can help keep federal loan payments manageable."
Because private loans have fewer consumer protections and far more stringent repayment options, Asher says federal authorities should create a vehicle allowing students to refinance these loans, ideally into a federal loan program that would allow greater repayment flexibility.
In the meantime, TICAS recommends that students carefully research the "net cost" of college -- after aid -- and graduation rates before committing themselves to a school. Some of the nation's highest-cost colleges, including Princeton and Columbia, provide so much much aid that their students graduate with far less than the average debt load, according to the report. Other colleges, however, may have lower sticker prices, but they leave their graduates heavily burdened with loans -- sometimes disproportionately with private loans, according to the report.
Those who wish to look up the performance of individual colleges can go to TICAS data page.