College is expensive. If students want to attend a typical four-year school, they will have to pay for it in one form or another. Some are fortunate to have parents pay their way through university while others work full-time to save money to attend classes. Less fortunate students end up turning to federal student loans to fund their education, which can get expensive quickly.
The Federal Student Loan Landscape
From the 2003-2004 school year until the 2010-2011 school year, total federal student loans for both graduate and undergraduate programs increased every year without fail, starting at over $63 billion and peaking at almost $114 billion, according to the Trends in Student Aid 2014 report published by The College Board. Luckily for borrowers, it looks like the 2010-2011 school year was the peak.
It seems as if federal student loans are on a downward trend now, with students only taking out $96 billion in federal loans for the preliminary estimate of the 2013-2014 school year. That is a decrease of more than fifteen percent in the last three years.
What Caused the Peak and Subsequent Decrease in Federal Student Loans?
The study does not say why total federal student loans have decreased since the peak in 2010-2011. However, based on the timing of the peak, one could make some educated guesses that would probably end up being fairly accurate.
The peak occurred just after one of the worst recessions we have experienced in our recent memories. Students do not choose when they graduate from high school, but many feel the need to attend college immediately.
While parents normally desire to help their children financially with their college education, money was tight for many families. Some families had to deal with losing income from layoffs while others took big hits in their investment accounts due to the stock market drop. These families may have planned to help their children pay for college, but they no longer could afford the same level of financial support they once could. This may have caused many to turn to federal loans to pay for their children's education.
The College Board study does not solely look at undergraduate federal student loans. Graduate loans could have been another driving factor of the increase leading up to the peak in 2010-2011. Undergraduate students were graduating into one of the worst job markets in recent history. Rather than wasting time unemployed, many decided to go to graduate school to further their education in hopes of finding a job after obtaining an advanced degree.
The difficulty undergraduates faced in finding jobs was not the only factor that would have increased graduate federal student loans. Workers who lost their jobs may not have been able to find another job, as unemployment rates were high. Many decided to further their education to make their resumes more competitive, which may have led to an increase in graduate federal student loans, too.
Now that the economy and job markets are slowly returning to normal, people may not have to rely as heavily on federal student loans in order to pay for their education. Parents that lost jobs may now have found a new job that supports their family and allows them to contribute once again to their children's education.
Other students that may have considered graduate school can now find jobs after graduating with their bachelor's degree. They may decide to forgo the additional expenses that graduate school would entail.
The stock market has improved greatly since the bottom in 2009, allowing many Americans to recover some of the wealth they lost in the crash. In fact, the market has been consistently hitting all-time highs, which could pad the education investment accounts of many future students.
Unfortunately, college costs continue to increase year after year. Only time will tell if we have hit a true peak in federal student loans. Although another recession could easily push federal student loans to all-time highs again, the downward trend looks promising.
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