Someday graduating, loan in hand

Students confronted with making a raft of decisions

By MICHELLE HATFIELD
mhatfield@modbee.com

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EDITOR'S NOTE: This is the second installment in a series featuring how students foot the bill for their college degree.

Over the next several months, The Bee will follow five local college students to show how they pay for college, whether it's competing for scholarships or grants, working at on-campus or off-campus jobs, relying on help from their families, or taking out loans. They'll open their books so we can see how they manage the costs. Today's story focuses on loans — the types that are out there, why they're becoming a "necessary evil" — and advice from students and financial aid counselors. Of the series's five students, two have taken out loans.

Devonte Ruff took out his first loan this year — $3,000 through Wachovia to help pay his rent.

Modesto Junior College and Columbia College
Neither college participates in federal loan programs anymore, but students sometimes borrow from private lenders. MJC does have a loan program for nursing students. In the 2005-06 school year (the last year federal loans were offered through MJC), 17 students took out federal loans with a total of $22,500.
Stanislaus State
32 percent of undergraduates and graduates took out loans, according to available data for the 2006-07 school year.
47 percent of them (3,752 students) took out federal loans for an average of $4,034 each; parents of 1.5 percent (115 students) took out PLUS loans for an average of $8,552 each; and 1 percent (81 students) took out private loans for an average of $6,167 each. (There's a percentages overlap because some students have more than one loan).
UC Merced
41 percent of all undergraduates took out a loan, according to data from fall 2006.
40 percent (481 students) have a federal student loan, borrowing an average of $3,556 each; 26percent (130 students) had parents participate in the federal PLUS program, taking out an average of $11,800 each; and less than 1 percent (two students) borrowed from a private lender. (Percentages overlap since some students have more than one loan.)
On the Net
http://financialaid.ucmerced.edu
http://web.csustan.edu/FinancialAid/data/FinancialAid-Information/Apply4Loan.html
www.edfund.org
www.icanaffordcollege.com
www.finaid.org
www.collegenext.org
www.fastweb.com
The role college financial aid counselors play in helping students find loans has come under fire in the past several months after private loan companies were caught providing kickbacks to colleges who agreed to steer students to their loan programs.
New York Attorney General Andrew Cuomo has reached dozens of negotiated settlements with colleges and banks.
Private student loan company Education Finance Partners recently became the third lender to agree to a multimillion-dollar settlement with Cuomo, joining Citibank and Sallie Mae.
Investigative efforts also identified at least six college financial aid directors and an official of the U.S. Department of Education who held stock in or accepted payments from Student Loan Xpress, another loan company.
Cuomo says he even plans to sue Drexel University in Philadelphia, citing its revenue-sharing agreements with Education Finance Partners.
Officials in California and other states have launched investigations similar to Cuomo's.
"It's a shame because a few ruin it for the rest," said Myra Rush, director of financial aid at Modesto Junior College.
The practice produces a climate of fear among students and families already resisting loans. Such agreements steer unknowing students to loans that might not be best for them.
A few make it tough on the rest
The contracts for compensation between lenders and colleges can appear to be conflicts of interest, said Diana Ralls, director of financial aid at the University of California at Merced.
"It depends on the terms of the agreement. Does it benefit students?" she said. "Our preferred lenders don't benefit us (the university) in any ways."
Most colleges offer preferred lender lists to narrow choices for students, although they still can take out loans from any company. Those lists are under scrutiny. People want to know how a loan company gets on the preferred list.
Ralls and California State University, Stanislaus' Tom Tompkins said lenders on their lists have a reputation for providing quality customer service to students and college financial aid offices; offer some of the lowest interest rates and best repayment options; and waive a variety of fees for student borrowers.
"It's a few programs, a few schools, a few lenders that are making it tough on the rest of us because governments, I think, are overreacting to a point that they want to do away with lender lists," said Tompkins, financial aid adviser at Stanislaus State.
"It's incredibly shortsighted. I only have 12 on my list, and students still don't know how to choose," he said.
Campus 'still the best place'
Students are now stuck in the middle between trusting financial aid counselors and navigating the overwhelming and sometimes risky student loan market alone.
The scandal includes lenders that have cut checks to college officials or offered money to the financial aid office for student scholarships.
No local colleges have agreements with lenders that provide financial compensation to the campuses, counselors said.
"They don't even get to take me out to lunch," Tompkins said.
The continuing kickback controversy has made some students more fearful of taking on debt.
And over the years, large loan companies such as Sallie Mae have been publicly accused of making astronomical profits while students defaulted on loans they couldn't afford in the first place.
"They also are distrustful of us who work in the financial aid office, but it's still the best place to get good, unbiased information of things awarded to them," Ralls said.
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Tuition, textbooks and fees are "mostly taken care of" through grants and scholarships, said Ruff, who's studying biology for a career as a surgeon.

"I was afraid," said the University of California at Merced sophomore."Mymom took out a loan for my sister and my sister didn't finish college. It took my mom a long time to pay it back. You have to just go ahead and do it. I'm going to be in school a really long time."

More and more, loans are becoming a "necessary evil" for students and their families as the price of attending college rises and grants haven't increased enough to keep up.

Interest rates range from 3 percent to 6 percent for federal student loans and can be as high as 10 percent from private lenders.

Students and their families use a combination of sources to pay for college. On average, 35 percent comes from federal loans, 25 percent from grants and scholarships, and 20 percent from working, according to Tamera Briones of Education Finance Partners, a private student loan company based in San Francisco.

The remaining 20 percent leaves students and families scrambling to cover the gap with private loans.

U.S. college tuition has increased 59 percent in the past decade. Family income has increased 2 percent over the same time, Briones said.

"Borrow only what you actually really need to stay in school," advised Tom Tompkins, financial aid adviser at California State University, Stanislaus. "You can always ask for more down the road."

Loans are Diana Ralls' least favorite subject.

"No one likes loans; they are debt," said Ralls, financial aid director at University of California at Merced. "But they have become reality."

$15,000 average loan debt

Loans usually are a last resort for families after students receive all the grants and scholarships they're eligible for (and don't have to pay back). Anyone attending college can apply for loans.

More than one-third of U.S. college students took out an average of $5,600 in loans for the 2003-04 school year, the most recent data available from the National Center for Education Statistics.

The average California student graduates with $15,000 in loan debt, according to a 2006 report by The Project on Student Debt. Students and counselors emphasize the debt is worth it in the long run. Adults with a bachelor's degree earned an average of $22,909 more per year than those with high school diplomas in 2004, according to the U.S. Census Bureau.

"What I tell students is, investing in your education is the best debt you can take on," Ralls said.

Loans take a few forms:

Stafford and Perkins loans from the federal government come subsidized (the government pays the interest) and unsubsidized (the student is responsible for the interest). Interest rates are lower than for private loans, but loan amounts are limited to between $3,500 and $6,000 per year. Eligibility is based on financial need.