The Economic Diversity web site now includes the average student loan debt for the 2005 graduating class as reported by 1,421 four-year institutions. Also included is the proportion of graduates with any student loans. The site provides access to these data (as well as comparable figures for 2000 and 2004) through an agreement with college guide publisher Thomson Peterson's. (The data are copyright 2006 Thomson Peterson's, a part of Thomson Learning Inc. All rights reserved.)

Using the new 2005 data, we constructed statewide enrollment-weighted averages for all 50 states and the District of Columbia. The state averages will be posted tomorrow on our sister site, the Project on Student Debt, along with a brief report. The five states with the highest average cumulative student debt are New Hampshire, Iowa, North Dakota, Rhode Island and Pennsylvania. The five lowest are Utah, Hawaii, Delaware, Maryland, and California.

These data aren't perfect. Colleges are asked to report the total federal and private student loans taken out by graduating seniors while they attended that institution. This means that prior borrowing by students who transfer is not included. Actual debt may also be higher due to private loans taken out by the students but not handled by the campus financial aid office (and therefore not in the campus' records).

Posted by Ajita Talwalker at 9:46 AM | Permalink

Companies offering private student loans advertise low rates, but the rates they actually charge to individual borrowers, and how they determine those rates, are closely-held trade secrets. The rates are based on borrower credit scores and other factors; ultimately, companies maximize their returns by trying to charge the highest rate they can while still getting the business.

One way to determine the actual rates being charged on private student loans is to review the prospectuses that accompany portfolios of loans that are sold to investors. We looked at four recent portfolios from Sallie Mae, and one Fitch Ratings review of a portfolio from the National Collegiate Student Loan Trust. These portfolios revealed average interest rates today of 9.77%, 9.91%, 10.0%, 10.11% and 10.35% (based on a today's Prime rate of 8.25% and a 3-month LIBOR rate of 5.47%). Many borrowers, at least 15% of them according to the investor reports, are charged interest rates of more than 12%. These rates are variable, so as interest rates in the economy increase, so do the rates paid by the borrowers.

Posted by bob shireman at 1:09 PM | Permalink

One well-documented obstacle to economic diversity is the financial aid application process itself: the FAFSA is incredibly long, confusing and intimidating. When low-income students don't apply for financial aid, they miss out on resources that could increase their chances of success in college by allowing them to go to school full time, work reasonable hours, and attend more supportive institutions.

In a paper published this April, Harvard economists Susan Dynarski and Judith Scott-Clayton examine how the FAFSA can be a barrier to access and aid. Among their findings: "the basic step of locating financial records is an obstacle for poor students, due to higher mobility rates and family dysfunctions such as divorce and separation of children from parents." A recent ACE report found that nearly two million Pell-eligible students did not apply for financial aid in 2003-04. For the lowest income students, financial aid application rates are flat (for dependents) or declining (for independents), even as overall aid application rates rise.

Calls for FAFSA simplification usually focus on changing the formula that determines aid eligibility, so that it requires less data from students and parents. These proposals rarely make headway because they require difficult and politicized choices about eligibility, equity and cost.

The good news is that there's a very practical way to make the FAFSA easier for students and families to use, regardless of the underlying formula. That's because the government already has some of the most important information used to calculate eligibility.

Instead of having to dig through piles of tax records and do complex calculations, applicants could simply provide access to their IRS transcripts. The data could be processed electronically, eliminating many of the most difficult FAFSA questions and worksheets. People routinely give this permission when they apply for loans, and many commercial entities use this tool to verify income information. There's even a line on the IRS transcript request form that says: "If the transcript or tax information is to be mailed to a third party (such as a mortgage company), enter the third party's name, address, and telephone number."

The private contractors running the Federal Direct Loan Program already use a consent form to access Income Contingent Repayment Plan users' IRS data. And some local governments have incorporated the IRS form into applications for benefits for working poor families. So, why not build it into the FAFSA itself, and lower a barrier to access?

Posted by Lauren Asher at 9:01 AM | Permalink