Engineering junior Charles Igwekala has spent countless hours searching websites and flipping through book pages in what he said he feels is almost a vain attempt to find scholarships.
“I don’t doubt that the scholarships and grants are out there, but it’s very time-consuming to actually find the scholarships that are beneficial,” he said.
Over the past two years, Igwekala has successfully attained a few scholarships of a few hundred dollars each, but the money does not add up to the cost of attending the University. As a result, Igwekala estimated he has borrowed more than $11,000 thus far in federal loans – not including interest.
The University’s tuition increased 7.9 percent this year, and the University estimates the total cost of attending and living in a residence hall is $16,673 per year for Michigan residents and $32,553 for non-residents. As states reduce budget allocations to public universities, many schools are raising tuition at rates exceeding inflation.
About half of all University students receive some type of financial aid, said Margaret Rodriguez, senior associate director of the Office of Financial Aid.
The average debt upon graduation for a University undergraduate student is $19,000, she said, a figure that is slightly higher than, but consistent with, national averages. The University’s rate of loan default is exceptionally good – 2.3 percent compared to about 6 percent nationally – indicating that students are finding employment after graduation, Rodriguez said.
Sunita Sachdev, branch manager of TCF bank in Ann Arbor, said she has witnessed a 20 percent increase in student debt over the past two years both graduate and undergraduate students.
“The students want to consolidate (their loans), but it’s very difficult,” Sachdev said. “Because the state of the economy has made the risk factor much higher, students thought they would be able to get a good job, but they can’t,” Sachdev said.
One promising option students currently have is the consolidation of their loans through the Federal Direct Loan Program, which would lock in the current rate of interest at 3.46 percent, the lowest rate Rodriguez said she has ever seen.
“Consolidation would change the interest rate on the federal Direct Loans from a variable rate to a fixed rate. With interest rates so low, students could save a significant amount of money,” Rodriguez said.
According to a 2001 report by the non-profit State Public Interest Research Group, there has been an increase in student dependency on loans as federal loan aid increased 125 percent over the last decade compared to a 55 percent increase in grant aid over the same period.
The report stated that accessibility to grants has decreased during the last 20 years, comprising 40 percent of all student aid, compared to 55 percent in 1981. Loan aid, which accounted for 40 percent of all aid in 1981, is now 60 percent.
Numerous surveys conducted by the group found that students underestimate the total cost of their loans, often neglecting the impact of interest – which can increase the total cost of federal unsubsidized loans by nearly 100 percent.
“Students that are the most vulnerable – those with high levels of debt – have the least understanding of repayment,” the report stated.
Igwekala said he thinks overestimating one’s debt is easy because of easy access and student’s hectic schedules, but he considers himself to be an exception.
“I have a unique outlook on my finance,” he said.
LSA sophomore Jonathan Friedman said he expects to borrow approximately $100,000 by the time he finishes law school.
“It’s a double-edged sword. If the economy does a double-dip recession, more people will be inclined to go to law school instead of business school or start small businesses, which will make it harder to get into law school and may depress my initial earnings,” Friedman said.
President Bush’s 2004 budget proposal, released Monday, raised federal financial aid for higher education $62.2 billion – up 5 percent from last year. The funding would be allocated for college and vocational students and would include grants, loans and work-study programs.
The Pell grant is entirely need-based and is the heart of the government’s effort to make higher education accessible to low-income students. Due to the current economic recession and the large cohort of children who will be continuing to reach college age during the upcoming years, Bush also proposed to give 17.6 percent more to the Pell program, raising the total government spending on the Pell to $12.7 billion.
However, higher education interest groups, including the PIRG, have criticized the plan because Bush’s proposal will not increase the maximum amount of Pell, despite the rising costs of tuition and inflation. The Pell award is currently $4,000 annually.
Education Prof. Michael Nettles has conducted several national surveys documenting graduate students’ attitudes toward borrowing money.
“It seems like they are not allowing it to be an impediment,” Nettles said.
“As a rule nobody likes debt, but in the end it’s the best investment anyone can make. People who graduate from college today are estimated to have $1.8 million more in earnings than people who don’t,” Nettles said.