A periodic newsletter on a single topic of interest published by the Office of Higher Education
Student Borrowing Increases - Much Growth Among Higher-Income Families
This issue of Insight takes a look at undergraduate borrowing in the 2003-2004 academic year. The student borrowing information here is based on a survey administered by the U.S. Department of Education called the National Postsecondary Student Aid Survey. See also a report on student borrowing, produced by the Minnesota Office of Higher Education.
Overall, 49 percent of all undergraduate students in Minnesota (or approximately 150,000 students) took out student loans in 2004. This is a moderate increase since the 1999-2000 academic year when 41 percent of Minnesota undergraduates took out student loans.
In Minnesota, 63 percent of students who attended full-time for the full academic year had student loans. Among those who borrowed, the average annual amount was about $6,600, which is slightly higher than the national average of $6,210. In contrast, 19 percent of students who attended part-time for part of the academic year took out student loans. Undergraduates attending part-time and taking out loans borrowed an average of $4,390, which is slightly lower than the national average.
Average borrowing by full-time, full-year undergraduates in Minnesota in 2004
Full-time, full-year students borrow more than their part-time counterparts
Since student borrowing has increased over time, there is concern that debt repayment could adversely affect graduates' career plans, employment or their ability to pursue graduate school once they complete their undergraduate education.
Changes in undergraduate borrowing from 2000 to 2004
Borrowing Increases Among Higher-Income Families
Changes in borrowing by full-time, full-year dependent undergraduates attending Minnesota postsecondary institutions by income
Increased Borrowing Mirrors a National Increase in Personal Debt
"U.S. consumers have taken on record levels of debt as low interest rates have lured them to buy bigger houses and fancier cars and to charge more on credit cards than ever before." (USA Today, 3/17/04)
Families at the top of the income distribution are increasing their use of student loans and their use of consumer debt in general. From 1995 to 2002, consumer debt for households in the top-fifth of incomes grew 20 percent, while it grew 10 percent for households in the bottom four-fifths of incomes. (Wall Street Journal Classroom Edition, 11/2/2002)
Minnesota ranks 11th among the states in overall levels of consumer debt. (USA Today, 3/17/04) Minnesota has a higher median income than the national average. High median incomes and high consumer debt may go together - most of the states with high consumer debt also have higher than average median incomes.
Reliance on Unsubsidized Loans Increases
Changes in borrowing by full-time, full-year dependent undergraduates attending Minnesota postsecondary institutions by type of loans
Middle Income Families Most Likely to Borrow
Average borrowing by full-time, full-year undergraduates in Minnesota
Loan sources and limits
Several states offer loan programs, including Minnesota. Minnesota's Student Educational Loan Fund (SELF) loan program began in 1987. Administered by the Minnesota Office of Higher Education, SELF Loans are for Minnesota residents enrolled for at least half-time, non-Minnesota residents enrolled at least half-time in postsecondary institutions in Minnesota, and Minnesota residents attending participating institutions in other states. SELF Loan interest rates are currently 7.5 percent.
Federal and state loans have limits based on various criteria, such as the student's dependency and attendance status. Table 1 shows the loan limits for the Stafford and SELF Loans for both dependent and independent students. The loan limits increase as the student's class level increases. Loan limits are not only for the annual amount borrowed, but also on the cumulative amount that a student can borrow during her/his educational career. The Stafford loan's cumulative limits are $23,000 for undergraduate study but, if the student pursues graduate study, the cumulative loan limit for both undergraduate and graduate study is $65,000. The SELF Loan limit for undergraduate study is $25,000. If the student pursues graduate study, she/he is eligible for $40,000, but the combined total of undergraduate and graduate SELF Loans cannot exceed this amount.4
Students can also borrow private (or alternative) loans from non-governmental sources. These loans are not relied on as heavily as the government student loans, but a greater number of students are borrowing from private sources. Loan limits and interest rates vary.
About the Office of Higher Education
The Office of Higher Education is a state agency providing students with financial aid programs and information to help them gain access to post-secondary education. The agency serves as the state's clearinghouse for data, research and analysis on post-secondary enrollment, financial aid, finance and trends.
The Minnesota State Grant program, which is administered by the agency, is a need-based tuition assistance program for Minnesota students. The agency also oversees tuition reciprocity programs, a student loan program, Minnesota's 529 college savings program, licensing and an early awareness outreach initiative for youth. Through collaboration with systems and institutions, the agency assists in the development of the state's education technology infrastructure and shared library resources.
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