Student Debt

The cost of attending college has increased for the past several years, and many students are finding themselves turning to student loans to fund their college educations.

The demand for a college degree is rising, along with the costs of tuition. For many, student loans are the only option for securing a somewhat stable future. In addition, getting a bachelors degree is an option many students feel will not suffice for living a comfortable life after college. More students are shying away from low-paying occupations, such as teaching. This generally requires additional years of schooling -- and, in turn, more student loan debt.

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According to the Center for Economic and Policy Research, average loan debt in 2004 was $17,600 ($22,581 for private colleges). For those that borrow from the federal Stafford loan program, that average was $23,000 -- which also represents the maximum amount undergraduates may borrow over four years. And that's not all. A college education is getting so expensive that many students are taking out private loans in addition to their federal loans. Private loans come with higher interest rates, which means students will be paying for their education for years to come.

On July 1, 2006, federal loan programs will switch from a variable rate interest system to a higher, fixed rate system. Interest rates on Stafford loans will increase from 5.3% to 6.8%. PLUS loans will jump from 6.1% to 8.5%. Even worse, private loan interest rates can increase to more than 12%.

With higher interest rates, students will find themselves taking longer to repay their loans and pushing back many of life's milestones, including getting married, having children, or buying their first house.

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