Stanford University

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NEWS RELEASE

03/23/95

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Federal changes lead to a record year for student loans

STANFORD - Changes in federal lending rules have led to another year of record student borrowing at Stanford - with significant increases in ³unsubsidized² loans for middle-class families that require interest payments while students are still in school.

According to Diana Netherton of the California Student Aid Commission in Sacramento, Stanford students and their parents took out 1,790 federally guaranteed low-interest loans totaling $9.2 million in the first half of fiscal year 1994-95, close to what they borrowed in all of 1993-94, and $3 million more than they were borrowing five years ago.

Such loans, which come under the Federal Family Education Loan Program, represent about 85 percent of all student borrowing at Stanford.

³The Stanford data seem to be consistent with those of other four-year schools,² Netherton said. ³Statewide in the past year, there has been a 7.7 percent decline in the total number of federally guaranteed student loans, but a 12.5 percent increase in the dollar value borrowed.²

The increases are primarily the result of the Higher Education Reauthorization Act of 1992, which raised loan limits and made it easier for middle-class families to borrow money for college, primarily by exempting family homes as assets when calculating student need.

As in past years, most of the guaranteed loans taken out by Stanford students in the first half of 1994-95 (1,325 loans for $4.4 million) were Stafford Subsidized Loans, which are made by banks, savings and loans, and credit unions to students with demonstrated financial need. Payments on subsidized loans are delayed until six months after graduation.

A more striking trend has been the increasing number of unsubsidized loans going to Stanford students and their parents. These loans, another product of the Higher Education Reauthorization Act, were designed to help middle- and higher-income families regardless of need, with federally guaranteed low-interest payments beginning while the student is in school.

In the first half of fiscal 1993-94 alone, Stanford students took out 387 Stafford Unsubsidized Loans for $3.8 million, compared to 136 loans for $417,471 in the first half of 1993-94.

Stanford families also took out 73 unsubsidized Parent Loans for Undergraduate Students for $895,356 in the first half of this fiscal year, and five unsubsidized Supplemental Loans for Students for $19,598.

³The unsubsidized programs are something new that Stanford families definitely are taking advantage of now,² said Nan McKenna, assistant director of analysis for Stanford¹s Office of Financial Aids. ³My guess is that they account for the largest part of the borrowing boom.²

The new loans, McKenna added, ³are good in the sense that they give flexibility to some families that otherwise wouldn¹t be able to demonstrate need. It¹s nice for them to get the lower interest rates.² But she worries about the loan debt being taken on by many students - especially those at public universities that don¹t promise to meet students¹ demonstrated needs as Stanford does.

³Many of these students are coming out with horrendous loan debts,² McKenna said. ³We¹re also concerned that these federal loan programs are expanding at the expense of direct grant funds, such as Federal Pell Grants, and Student Incentive Grants that are now on the chopping block in Congress.²

Stanford remains committed to need-blind admissions and meeting the demonstrated need of all admitted students, according to James Montoya, Stanford dean of undergraduate admissions and financial aids.

³Given proposed federal budget cuts to financial aid, we¹ll have to take it one year at a time,² he said. ³We are trying to work with representatives in both Sacramento and Washington, D.C., to ensure that we are able to retain as much state and federal funding as possible.²

Still, he said, ³particularly with the kind of budget cutting that is taking place in the Capitol, we have to be prepared for the fact that the university may find itself in a position of carrying greater financial responsibility to see through its policies.²

Montoya said Stanford probably will add about $2 million onto its overall financial aid budget next year, to help students keep up with the university¹s announced 5.5 percent tuition increase.

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