Over 13 million students apply for federal student financial aid each year, and $91.7 billion dollars of aid is projected for fiscal year 2010. According to the Department of Education (DOE) fiscal year 2010 budget request, out of the $91.7 billion dollars, 85% of the money will be federally backed Stafford Loans. The amount of loans taken out by students has increased dramatically in the last three decades, but many of these students don’t actually understand the terms of the loans that they are now responsible for.


Figure courtesy of Google images

Student Loan Overview:

The primary authorizing legislation for postsecondary financial assistance programs was The Higher Education Act (HEA) of 1965, which was signed by President Lyndon B. Johnson. Title IV programs contain most of the financial aid programs that we use today. The programs include Stafford subsidized and unsubsidized loans, Pell Grants, Federal Family Education Loans, PLUS loans, and work-study programs.

How much financial aid a student receives is based on the cost of attendance at their university and the expected family contribution. The expected family contribution is determined by looking at the parents’ income and assets, the number of family members and the number of family members in college. The difference between the cost of attendance and the expected family contribution will determine what kind of financial aid the student will receive. The most used type of financial aid is student loans.

Figure courtesy of FAFSA "Front2Back online course"

The Growing Student Loan Debt:

The Federal Student Loan Program is the most common form of financial aid taken out by students. Many students do not receive enough grants or work-study dollars to get them through their full degree program.

According to the 2010 federal budget proposal, the loan subsidies for 2008 were over $650 million and the 2010 budget proposal is for over $13 billion. The increase in loan subsidies has put more students in debt but has also helped more people go to college. Many students would not have been able to afford college if the Federal Student Loan Program was not in place.

Unsubsidized loans are the only form of financial aid that does not consider your financial need. Any student can receive unsubsidized loans, and this is likely the cause for the dramatic rise in student debt in the last three decades. According to the Free Application for Federal Student Aid (FAFSA) website, “2/3 college graduates now carry student loan debt compared to only half of the students in the early 1990’s.”










Figure courtesy of FAFSA "Front2Back online course"

Subsidizing the Fears:

Russell Cain, an alumni of Texas State University – San Marcos, said that he believes students should not be afraid to take out loans and that, “it is the cheapest money they will ever see, so if they can use it responsibly, they should [take the money].”

Katie Townsend, a graduate student at Texas State University – San Marcos, agrees with Cain. Townsend said that her family was able to pay for her undergraduate degree, but as a graduate student, she had to take out loans. She was scared at first but realized that being in debt with a student loan was not as bad as struggling in school with a full time job. She said, “Student loans are the best kind of loans you can have. Banks can take your car and things but not your education.”

Many schools have become direct lending schools, which take the money directly from the government and give it to the students. Texas State is one of those schools.

“With direct lending the process is much easier; there is no middle man, and a student does not even have to step foot in our office to get through the process,” said Crisselda Jass, the Assistant Director of Financial Aid and Scholarships. This makes the loan process much easier on students but also causes students to not ask as many questions and learn more information about their loans.

The Information Gap:

Jass said that she believes students are not well informed, and “even though information about loans is readily available, students do not have a sense of urgency to learn.” She also said that Mondays are the busiest days at the Office of Financial Aid and Scholarships on the Texas State University – San Marcos campus, but only 135 students on average visit the office. To put that in perspective, there are over 17,000 students that receive financial aid each year according to the Texas State University – San Marcos Financial Aid website. If you have 135 different students visit the office every Monday for a year that is 7,020 students. This is less then half of the financial aid recipients. Many students admit to not having enough knowledge about the financial aid they receive.

When I asked Townsend what she thought her knowledge level was on her loans, she immediately responded that she did not know anything, “I will start paying when I get the bill in the mail,” she said.

Tyler Stoikes, a Texas State University – San Marcos junior, said he believes he knows everything there is to know about his loans, but when I asked him to explain the difference in subsidized and unsubsidized loans he was unable to.

The information is out there to learn more about the loans students are receiving. There is entrance and exist counseling that students are required to take, and there is the “Student Aid Front2Back Online Course” on the FAFSA website that is readily available for students. There are also the resources of the financial aid office. However, with everything done online now, many students do not take the time to go to the financial aid office and ask questions.

For Fun Survey:

I took a survey of 100 students in Central Texas that receive financial aid. Here are some of my results:










Graphs courtesy of creatagraph.com.

Survey courtesy of SurveyMonkey.com









FYI: And it will only get easier:

The DOE is creating a “shorter, simpler and more user friendly FAFSA form.” According to whitehouse.gov, there are 153 questions on the FAFSA, and many of them have little or no impact on the student’s eligibility to receive financial aid. The DOE is also proposing that when a parent or student enters their information online for the IRS it will automatically insert into the appropriate areas on the FAFSA form. In January 2010, some of these changes will become effective, with many more to come.