A college education can be one of the most rewarding investments that a parent or a student can make. With increasing tuition expenses, room and board costs, and additional educational fees, a college education can also result in a large amount of loan debt. Depending on financial aid and the use of loans, the amount of debt could be higher or lower. A college's academic reputation and its private versus public status can also influence the amount of debt that a parent or student incurs.
Federal Loan Benefits
One of the most influential factors affecting the average college loan debt is whether a student has qualified for and accepted federal financial aid. The use of federal loans can greatly increase the average amount of college loan debt even though these types of school loans generally have low interest rates. According to Finaid.com, two-thirds of all four-year students who graduated in 2007-08 with a bachelor's degree incurred some sort of college loan debt. According to that same site, the average graduating senior who had received federal financial in the form of a loan had an outstanding debt of $17,878. That amount included Stafford, Perkins and other federal loans.
PLUS Parent Loan Considerations
To accurately assess college loan debt, student loan amounts and parent loan amounts must be considered. Average college loan debts increase when PLUS parent loans are included in the statistical analysis. According to Finaid.com, including parent PLUS loans in the total college loan debt incurred in 2007-08 increased the average cumulative debt. With student loans and PLUS parent loans combined, the average college loan debt totalled $27,803. According to that same site, about two out of every 15 parents borrowed PLUS loans for their children's college education. For those parents who chose to use the PLUS loan, the average college loan debt for just the PLUS portion was $23,298.
Significance of Private Vs. Public Colleges
Private colleges tend to have higher tuition rates than public universities. However, many private colleges offer generous financial aid packages and work-study programs that help decrease college loan debt. According to collegewithinreach.com, while private colleges are awarded some federally funded financial aid, they also have access to private sources of funds like grants and endowments. According to that same site, tuition may be higher, but private colleges tend to provide additional aid to students and generally give students larger financial aid packages than public colleges. Students attending private universities are eligible for both federal loans and private funding sources. As a result, the average college loan debt could be lower with a private university.
Risks Associated with College Loan Debt
Education loans, both privately and federally funded, must be paid back. Loans are not grants or scholarships, so the funds must be paid back in full with interest. However, most college loans do not have to be repaid until after the student has graduated. Federally funded loans have relatively low interest rates that make most payment plans affordable. In order to lower monthly payment amounts, the duration of the loan repayment usually takes 10 years or more. Defaulting on these loan payments can result in poor credit and the inability to get any type of a loan in the future. According to the National Association for College Admission Counseling, loans do bring some risk. Since the borrower is agreeing to years of monthly payments, it's a good idea to minimize the loan amounts when possible.
Effects of College Loan Debt
As with any loan, the greater the amount of indebtedness, the more difficult it will be to qualify for other types of loans. An average college loan debt could impact a graduate's ability to purchase a car, a home or any other type of personal property. Average college debt loads can also make continuing education a less appealing goal. Even though loan repayment plans may not start until after all educational goals have been completed, the increasing loan amounts and deferred payments can become overwhelming for a young graduate.
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