Borrowing for your future

Getting the first loan seems a little bit like magic. For students who can't afford the school of their choice, student loans are a viable alternative. Apply for a loan and the money seems to appear as if out of thin air. But after the second one, it begins to sink in. At some point, the money has to be paid back. All of it.

"Even though right now I'm set on going into a secure field, I still constantly feel the weight on my shoulders," said Cecilia Wright, a pre-med student at Yale University. "Knowing that I will automatically owe money when I graduate is daunting."

Between the 2000-01 and 2006-07 school years, the College Board Trends in Student Aid report estimated 60 percent of recipients of bachelor's degrees borrowed money to pay for their education, with an average debt of about $22,700.

In the current economic environment, paying for school is a more difficult issue than ever, and no one feels it more than students whose parents are unable to provide a helping financial hand in their college years.

"The U.S. Department of Education has reported that more than a million more financial aid FAFSA (Free Application for Federal Student Aid) applications were filed during the first quarter of 2009 compared to the first quarter of 2008 _ a 20.8-percent increase," said Allesandra Lanza, public relations manager for American Student Assistance (ASA), a loan guarantor that now serves as a source of information for students as they go through the loan application and repayment process.

But FAFSA, which uses a household's financial information to estimate your Expected Family Contribution (EFC), does not always cover all college costs. Many students must take out loans for what FAFSA does not cover.

Lisa Westermann, a spokesperson for financial services company Wells Fargo, said they had given a total of $30.5 billion in student loans by the end of 2008, serving 2.4 million families. According to its Web site, Wells Fargo originates more than $4 billion per year in private and federal loans.

College students across the country must answer the same question _ how are they going to pay it all back?

With the current economic crisis at hand, current students face an unsteady job market, and loan repayments could be more difficult than ever

"We are certainly starting to see a rise in more people having difficulties repaying their loans because of the economy," Lanza said.

Lanza said a projection from the Department of Education predicts the cohort default rate, which tracks loan recipients in their first two years of repayment, will rise to 6.9 percent from last year's 5.2.

Wright, an upcoming junior, is fortunate to attend a school with an impressive endowment of $22.9 billion, according to the Yale University Investments Office. Thanks to Yale's financial assistance program, she has been released from much of the burden of paying her tuition, which next year will rise 3.3 percent to $47,500.

However, she is still forced to take out between $5,000 and $6,000 each year in loans to pay for living costs such as room and board, travel and food, despite Yale's generous endowment. Wright had to borrow $9,000 for her freshman year, before the school changed its financial aid program.

"I'll still owe around $24,000 when I graduate, even before I go to medical school," Wright said.

Wright plans to have a career with a large earning potential, but as with anything, there are no guarantees.

"What if I decide halfway through medical school that I no longer want to be a doctor? Then I'm stuck with the debt and no way to pay it back," Wright said.

Kimberly Kroll, 20, is a rising junior at The George Washington University in Washington, D.C., ranked by Forbes magazine as the most expensive university in the country. Finding the funds can be especially difficult for students at a school where the total cost of attendance (tuition, room, board, etc.) for the 2008-2009 school year for some students reached as high as $56,000.

Kroll has to borrow $14,000 per year to pay for George Washington. That is even after the scholarships and grants that made it possible for her only to have to borrow that much -- though $14,000 per year is no small number. Tack on about $2,000 and you can buy a brand-new Honda Civic Coupe -- for each year of college.

"I am a little afraid of getting it paid back because I'm afraid of not getting a job after school, or if I decide to go to grad school and don't get scholarships," Kroll said. "I want to go to law school after school, if I can pay for it."

Rachel Robins, 28, an auditor in her fifth year with Ernst & Young LLP, took out a loan to pay a portion of her tuition for her last two years of college, as well as her masters program in accountancy the following year in 2004, both at Auburn University in Alabama.

"For me, I would say the benefit of taking out the loan very much outweighed the burden of the current monthly payment that I make," Robins said.

Even with more jobs requiring some form of advanced post-baccalaureate degree, there has not been a significant change in graduate enrollment.

"The number of students going to grad school now versus 20 years ago is very much the same," said Jane Wellman, executive director of the Delta Project on postsecondary education.

The same students who take out loans for undergraduate education are likely going to have to take out more loans for graduate school. These students must ask themselves if it is worth the financial risk.