NEW YORK - COLLEGE students may have to borrow more to finance their higher education as market turmoil erodes savings, a public policy group that tracks student aid said.
For the class of 2007, the average debt for a graduating undergraduate student was US$20,098 (S$30,028), a 6 per cent increase over 2006, according to the Project for Student Debt.
Declining home values and rising unemployment have led one-third of parents to slow college savings, an August survey by TD Ameritrade Holding Corp said.
'Their other sources of money have dried up', said Mr Robert Shireman, executive director of the Berkeley, California-based Project on Student Debt. 'At worse they have lost their job and a lot of others will see their savings account diminished'.
The Standard and Poor's 500 index has fallen 38 per cent year to date, said Bloomberg news.
According to financial data firm Morningstar, all 79 of the so-called 529 college savings plans in its database have fallen in value this year, with 60 dropping more than 10 per cent.
In the 2007-2008 academic year, more than US$143 billion in financial aid was distributed through federal loans, grants, federal work-study, federal tax credits and deductions, according to the College Board, a New York- based nonprofit association of colleges. An additional US$19 billion was borrowed from state and private sources.
Real challenges
'We have been staying close to the developments in federal student aid and in student lending', Ms Sara Martinez Tucker, Under Secretary for the US Department of Education, said in a news conference late on Monday.
On Nov 8, the Department of Education announced an extension of legislation passed by Congress in May that maintains increased lending limits and loan-buying capacity through the 2009-2010 school year.
'Having a purchase programme would give confidence to lenders that there would be a home for these loans', Ms Martinez Tucker said.
The University of Maryland set up a committee to handle financial aid appeals as parents find their ability to pay has changed, said Ms Sarah Bauder, director for the office of student financial aid.
'Now parents are coming and saying, 'How did we know the economy was going to come spiraling down?'' Ms Bauder said. Monthly payment plan delinquencies are on the rise for the first time in recent memory, she said.
Aid Applications Rise
Applications for financial aid at the University of Delaware rose by 800 for the 2008-2009 academic year, said Mr Johnie Burton, director of scholarships and financial aid. The majority of aid packages involve federal loans and some students took advantage of the higher loan limits, he said.
At Temple University in Philadelphia, spokesman Ray Betzner said any increase in loan applications likely will come in the spring as most students have already secured the financing they need for the 2008-2009 academic year.
For those needing to borrow to finance an education, US-backed loans remain the best option, said Mr Mark Kantrowitz, publisher of FinAid.org, a college funding information website based in Cranberry Township, Pennsylvania.
Total costs including tuition, fees, room, board and expenses averaged US$14,333 for a public college and US$34,132 for a private school for 2008-2009, according to the College Board.
Private loans, many with variable interest rates, are still an option and are difficult to find amid the credit crunch, Mr Kantrowitz said.
Bank of America ended its private student loan program in April and Wachovia, soon to be acquired by Wells Fargo, ended its programme in August.
'It's going to be harder to qualify for them without a creditworthy cosigner,' Mr Kantrowitz said. 'Prove your credit but be prepared for the possibility that the lenders might not be there'.
