NORTH MANKATO — Now that spring has set in, financial aid forms are being filled out for fall-semester starts, and students are starting to get budgets together to prepare for their expensive post-secondary careers.
But there’s an added cost that area financial aid experts are warning students about that will affect the amount of student loan debt they’ll end up with after college.
Incoming college freshmen could end up paying $5,000 more for student loans if Congress doesn’t stop interest rates from doubling. Mandatory federal budget cuts are taking place, making a deal to avert a doubling of interest rates much more elusive before a July 1 deadline.
The change would be from 3.4 percent interest to 6.8 percent. That rate hike only hits students taking out new subsidized loans. Students with outstanding subsidized loans are not expected to see their loan rates increase unless they take out a new subsidized Stafford loan. (Students’ non-subsidized loans are not expected to change, nor are loans taken from commercial lenders.)
Like many financial aid officials across the country, Jayne Dinse, financial aid director at South Central College, said they’re doing their best to inform students about the interest rate hike and what that will mean for paying off student loans.
Dinse said SCC has seen an increase the past few years in student-loan borrowing as tuition costs have increased and financial-aid funding hasn’t kept pace. The average amount borrowed now by SCC students is $12,650.
“We are informing students that the rate of interest on new subsidized loans will increase, and we are encouraging them to borrow only what they need,” Dinse said.
That sentiment was echoed in a Free Press story last fall about the rising student-debt load at Minnesota State University. Sandra Loerts, MSU director of financial aid, said there aren’t hidden programs students can be made aware of in lieu of loans.
“What we do here is we encourage students to only borrow what they need, not necessarily what they’re eligible for,” she said in November.
A study released last fall by the Institute for College Access and Success in California that looked at 2011 graduates nationwide showed that Minnesota graduates have the third-highest amount of debt in the U.S. — about $29,800, compared to the national average of $26,600, according to the study. (Only New Hampshire and Pennsylvania grads had more debt.)
Among public schools in the state, MSU had the third-highest student-debt load: $29,415, which is greater than St. Cloud State University ($28,819), the University of Minnesota-Twin Cities ($28,407) and Southwest Minnesota State University ($26,394).
School financial aid officials say they do everything they can to provide loan counseling and make sure students are aware of how easily debt can mount.
Dinse said SCC offers a variety of scholarships that can help with educational funding and lessen the need for student loans. She said there has been a 30 percent increase in scholarship applications as students look to alternative resources for college costs.
“(The) reality is that many students will still use this as a source of funding their educational expenses despite the interest rate,” Dinse said. “... Frankly, more students will have to work more and take less credits.”
Dinse said SCC is holding Free Application for Federal Student Aid (FAFSA) help sessions on campus, during which students are being informed about the rate hikes. They’re also being provided information about work study, scholarships and the federal Pell Grant program, which all can lessen student-loan needs.
Dinse said award letters for all means of funding go out during fall registration time when tuition has been set and the interest-rate information has been determined.
— The Associated Press contributed to this report.