As more student loans accumulate, so does worry

The total amount of outstanding student loan debt has exceeded the total national credit card debt for the first time in history, as the figure nears $850 billion in both federal and private loans.

As the costs of attending college continue to rise, need-based financial aid grants have not been able to keep pace, forcing students to turn to these loans as a source of financial aid and driving up the total amount of debt in student loans.

Approximately 60 percent of USC students receive some form of financial aid, with most of those financial aid packages including student loans.

According to Patrick Moore, senior associate director of loans in the USC Department of Financial Aid, there has recently been a slight upward trend in the number of students applying for financial aid, but the demonstrated need of those students remains relatively consistent from year to year.

The federal government declared the Federal Direct Loan Program as the only government-sponsored loan program in the country in July. Under the direct loan program, schools provide loans to students with funds that originate directly from the United States Treasury.

This program replaces the previous Federal Family Education Loan Program, in which private banks and credit unions acted as the source of capital for student loans. These private lenders would make federally guaranteed loans to students, but the source of the money itself was not the National Treasury.

“Schools draw down money from the Treasury Department and the loans are owned and serviced by the Department of Education,” Moore said. “The federal government is the direct source of the funds for the program, rather than going through the banks and credit unions as a middle man.”

With the tumultuous financial climate in recent years, several banks opted to back out of the Federal Family Education Loan Program, prompting the federal government to step in and provide a more stable funding source.

“In the past we had to rely on banks to develop the money and in this last year, because of difficulties in national credit markets, the federal government ended up purchasing many of the loans,” Moore said. “What the Federal Direct Loan Program does is create a flow of funds that is not going to be interrupted or threatened by changes in national capital markets.”

The new loan program also gives students lower interest rates on some loans in comparison to the old program, saving students money in the long process of repayment. By consolidating the source of the loans, it is also easier for students to manage repayment options and rates.

Yet, some students still feel the burden of loans and their accruing interest as every school year brings along more debt.

“I’m definitely worried about loans building up. The way it’s looking now is it’ll be like 10,000 per year, so 40,000 by the time I graduate,” said Omar Gonzales, a freshman majoring in business administration. “It’s kind of a scary thought.”

USC offers several different repayment plans for students, ranging from 10 to 25 years to fully repay the loans. For students of lower income, there are plans that can be adjusted based on gross monthly income and family size.

In addition, loan forgiveness programs exist through the Federal Direct Loan Program to relieve students of their payments under various circumstances, including volunteer work, military service or public service.

Students can also utilize the Public Service Loan Forgiveness Program that waives the balance of student loans for government or private non-profit employees who have made payments on their student loans for at least 10 years.

However, the daily stress of money spent still worries some students.

“It does sit in the back of my mind, as far as the fact that I’m spending money that I have to pay back. It’s not money I actually have in my pocket, so I think I will be a little more cautious as far as how and what I spend it on,” said Hesam Akbari, a junior majoring in business administration.

“I’m kind of in a situation where I have to pull the loans out,” Akbari said. “Whatever interest rate they give me, they give me. I don’t really have an option.”