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2006: A look back - A look ahead  
  Change was the name of the game in 2006 while the biggest push for reform in 2007 will be aimed at college-related debt.
 College financing
 Personal finance calendar  Personal finance calendar 

What's new for college financing: a look ahead

Meander through the quad of any college campus and you'll see students from all walks of life. But they're increasingly united by a common burden: debt.

Student loan debt has emerged as one of the most pressing problems for students and their parents alike. While the coming year will bring improvements to other areas of college finance -- namely 529 savings plans -- the biggest push for reform in 2007 will be aimed at college-related debt.

In fact, says Brett Lief, president of National Council of Higher Education Loan Programs, "There's going to be a boatload of attention to the matter."

The focus is understandable, given numbers from the National Center on Education Statistics. Today, nearly two out of three graduates have borrowed to pay for their education. What's more, average debt levels have more than doubled since 1993 to $19,200. Even parents are getting mired in it. About one-fifth of parents with graduating college seniors took out federal Plus loans with balances averaging $21,984.

Don't expect escalating tuition and other higher education costs to level off in the immediate future. The College Board expects tuition to keep rising. Moreover, it's unlikely that Congress will infuse financial aid programs with the kind of funding necessary to significantly help families pay for school.

"With the deficit situation the way it is, there's not a lot of money," says Dallas Martin, president of the National Association of Student Financial Aid Administrators.

Sprucing up federal loans
That's not to say some help isn't in the offing. One area that's hot for improvement: federal loan programs.

In the coming year, borrowers could find that the government's low-interest loans provide more flexibility with repayment terms or added safeguards to relieve the debt load.

"There are a couple of bills in Congress to make it easier to get protection against unmanageable debt levels," says Sandy Baum, senior policy analyst at The College Board.

The nation's Secretary of Education, Margaret Spellings, also has raised concern about growing debt levels associated with college. The Commission for Higher Education targets the Pell Grant program for funding hikes. Specifically, it has floated a proposal to increase grants so that they typically pay for 70 percent of tuition at a public university. Currently, grants cover 44 percent -- roughly $2,445 -- and cap out at $4,050. The commission suggests a maximum of $6,150.

How likely are such huge hikes? Not very. "An additional $100 or so would be more likely," says Baum.

Meanwhile, The Project on Student Debt presented a list of potential reforms to the Department of Education that the federal agency could enact without the approval of Congress. Among the proposals: capping student loan payments to a percentage of a borrower's income and making it easier for individuals to get temporary relief from paying off their loans in the event of hardship, such as unemployment.

"There's been a lot of activity to encourage the DOE to take the proposal on," says Robert Shireman, president of Project on Student Debt. "If they do decide to move forward, the negotiations over the details would probably go through March."

-- Posted: Nov. 1, 2006
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