New law seeks to lower college borrowing costs

There’s new good news and new bad news when it comes to paying for college. The good news is that a federal law passed by Congress in 2007, the College Cost Reduction Act, will increase the amount of aid available to many students.

The bad news? The average out-of-pocket cost to attend a four-year college education has gone up as well, even for students receiving aid.

The bottom line: The growing gap between scholarships and grants and college costs is forcing more families into the private loan market and increasing student debt loads after graduation. That makes shopping for the best student loan more important than ever.

Rising college costs
The College Board, a nonprofit association of schools that administers tests including the SAT, says college prices rose about 6 percent for the 2006-07 school year over the previous year, higher than the rate of inflation. Prices are up 35 percent over a five-year period, the Board said.

Tuition and fees at the average four-year public university were $5,836 in 2006-07, according to the October 2007 report. That was 6.3 percent higher than the previous year, 2.4 percent after adjusting for inflation. Adding room and board brought the bill for an in-state student to $12,976.

Private school costs were significantly higher, the report said. Tuition and fees in 2006-07 averaged $22,218 at four-year private colleges and universities, or 5.9 percent higher than the previous year. The inflation-adjusted increase was 2 percent, slightly below the rate of increase for public four-year schools. Room and board raised the bill to $30,367.

Financial aid is not keeping pace with tuition increases
Nearly two-thirds of full-time students at four-year schools receive grant aid, lowering their overall costs, according to the College Board report. Grants and tax benefits lowered the average total bill for students at public four-year schools to $2,700. But grant aid has not kept pace with the increase in average net prices since 2002-03, the report says. For private-school students, grants and tax benefits lowered the bill to $13,200.

Private loans represent a growing chunk of student loans, growing at an average annual rate of about 27 percent since 2000-01, according to a separate College Board report on student debt. One out of five student loan dollars in 2005-06 was from private lenders rather than through the federal government, the report said. Private loans totaled $17.3 billion in 2006.

New law seeks to lower the cost of student borrowing
The College Cost Reduction and Access Act signed into law by President Bush in September 2007 increases funding for federal Pell Grants by $11.4 billion over five years. The maximum annual grant increases from $4,310 in 2007 to $5,400 in 2012, according to the White House.

The Act also helps lower the cost of borrowing by gradually cutting interest rates in half on federally subsidized loans over the next five years, from 6.8 percent for loans made through July 1, 2008, to 3.4 percent for loans made from July 1, 2011, to July 1, 2012.

Among other actions, the law also expands eligibility for Pell Grants and increases loan limits on federal student loans.


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