Students line up for federal loans

Students have been approved for more than $83 million in Stafford Loans as of Aug. 19, compared to the $79 million they borrowed at this same time last year, said Leann Eaton, assistant director of Financial Aid and Scholarships.

While the amount of federally funded dollars MTSU students are relying on to pay for college rises, preliminary indications reveal that this increase is quickly surpassing the university's 2010 fall semester enrollment rate.

Debra Sells, vice president of Student Affairs and Enrollment Services, said the final tally regarding MTSU's fall enrollment rate has not yet been determined, but university officials expect it to rise by only 3- to 4-percent.

In March, the U.S. Congress passed legislation that took control of the student loan industry as a provision in the Patient Protection and Affordable Care Act, commonly referred to as the health care bill.

These loans are now serviced by the U.S. Department of Education, and the option to accept federal loans is packaged alongside other financial aid money, such as Federal Pell Grants and scholarships.

Stephen White, director of Financial Aid and Scholarships, said there could be various reasons factoring into the increased amount of money students have to borrow for school, including higher unemployment rates.

"Literally, as soon as one phone call ends, there is another one on the line," Sells said, referring to the call center Financial Aid temporarily opened to address students' questions and concerns.

"It's nonstop."

There are also more nontraditional students returning to school, and many are responsible for taking care of their families, which can add to the financial strain placed upon enrollees, White said.

"I'm not surprised that the percentage of money being loaned to students has risen," MTSU President Sidney McPhee said.

"We are concerned about the [number of] students' growing in debt," McPhee said. "It's very clear that as the state reduces its support, not just of the university, but of the lottery, more financial burdens are placed on parents and students to cover the costs of tuition."

Some financial analysts worry that this increase in borrowing could be detrimental to students' financial futures.

"The government is offering students a lot of money that they simply don't need," said Benjamin Alton, a personal banker at Fifth Third Bank.

The problem does not lie on the fact that the funds from student federal loans should go toward a college education, Alton said, but on the fact that many students do not spend that money wisely or prepare a way to pay the loans off.

"Student loans are a necessary evil," Alton said. "Where people are being taken advantage of, is when they don't know how these loans work – the knowledge isn't there, and the government isn't providing it."

Even with this added funding, some nontraditional students are finding that they still cannot afford a college education.

"Our purge numbers [of students who did not paid tuition by deadline] are a little higher than in the past," Sells said. "This could be because even with student loans, students can't afford to go to school in this economy."

Alton said usually, traditional college-age students do not experience as much difficulty paying for college because their living expenses are generally lower than that of a nontraditional student.

However, White said that the new federally controlled student loan program has so far been easier for the university's staff and students to navigate than in past years when privately owned financial institutions handled such matters.

"Many private lenders were unable to fund their student loans," White said. "Approximately two years ago, with most of the schools in Tennessee, there were delays in getting student loans processed in the fall semester."

Following the passage of the Higher Education Act of 1965, private lending institutions began providing subsidized loans to college students. In 1972, the U.S. Congress authorized the creation of Sallie Mae, which then expanded the federally subsidized student loan program.

During the past decade, however, banks didn't have the necessary capital to follow through with government-subsidized loans when initially approving student applications. As a result, banks put the initial financial responsibility on the federal government, White said.

In other words, banks needed the federal government to pay for the loans up front instead of reimbursing the private institutions through tax subsidies.

However, if students had previously borrowed from a bank before it began putting financial responsibility on the federal government, they had to make payments on the two loans separately: one to the bank and the other the government.

White said having a federal-direct system reduces the points of payment.

While the Financial Aid Office expects the amount of student loans accepted by MTSU students to surpass 2009 records, officials are unsure by how much.

"It will probably be considerable, considering the year-round Pell [Grant] program," White said.

This program allows students to accept most or all of their fall and spring award money at the beginning of the school year, potentially freeing up more money for Federal Pell Grants in the summer and encouraging students to take out more loans.