URBANA — Students who take out loans to attend the University of Illinois graduate with more than $24,600 worth of debt, on average.
Factor in the money their parents borrow and total "family debt" rises to $40,208.
Student and parent debt loads have risen along with college costs, and UI financial aid administrators think Congress should address the entire college borrowing picture as they debate interest rates on student loans.
A compromise measure to keep interest rates on federally subsidized student loans at 3.4 percent for another year failed in the U.S. Senate on Wednesday, leaving in place a 6.8 percent rate that automatically took effect July 1.
Given the amount of media coverage on the issue, and the fact that legislators were home talking with constituents over the Fourth of July holiday, UI financial aid Director Dan Mann had hoped for some resolution to the congressional standoff.
"I'm not entirely surprised that nothing happened, but I'm disappointed," Mann said.
The 6.8 percent rate affects only loans taken out after July 1 of this year. A congressional study estimated the increase could cost the average student $2,600.
UI financial aid counselor Michael Correlli said the increase isn't terribly drastic, given that students don't have to pay back their subsidized federal Stafford loans until after they graduate, and the interest does not compound. The higher rate means students will pay an extra $34 per year for each $1,000 they borrow, he said.
Students who qualify based on financial need can borrow $3,500 to $5,500 per year through the subsidized program, depending on their year in school. They can also borrow up to $2,000 a year through nonsubsidized federal Stafford loans, which already carry a 6.8 percent interest rate that does accrue during college.
Mann said Congress should come up with a long-term plan for all types of college loans, including non-subsidized Stafford loans as well as the "Parent PLUS" loans targeted at students' families, which have a 7.9 percent rate. Critics note that both are higher than current rates for home mortgages.
Interest rates on student loans have been higher in the past, when market rates were also higher. In 2002, with bipartisan support, Congress decided to switch from an interest rate based on the 91-day Treasury bill and capped at 8.25 percent to a fixed rate of 6.8 percent, to take effect in 2006, according to U.S. News & World Report.
As overall interest rates dropped, Congress later cut that rate in half, and under a sunset provision the 3.4 percent rate was to have expired a year ago. But Congress extended it for another year in hopes that legislators would find a more permanent solution before this summer, Mann said.
The House approved a plan that links student loan interest rates to a market-based rate plus 2.5 percent and includes a cap of 8.5 percent. The rates would be adjusted annually and could vary during the term of a loan.
The initial White House plan connected rates to Treasury notes, plus 0.93 percent for subsidized loans and 2.9 percent for nonsubsidized loans. Interest rates would not be capped but would be fixed for the life of a particular loan, and payments would be based on a student's income.
Senate Democrats balked. The compromise defeated Wednesday would have kept rates at 3.4 percent for now and included an overhaul of federal student loans in the Higher Education Act rewrite this fall.
The UI didn't back any specific plan but conveyed its support for lower rates for students and a "longer-term solution than a one-year fix," Mann said.
Loan debt has been rising steadily in recent years at the UI and nationally, mostly because students and parents have borrowed more as costs have risen, Mann said. Base annual in-state tuition at the UI will be $11,834 this fall, though some students pay $16,000 or more with college surcharges.
More than half of all undergraduates take out loans during their UI careers, figures show. The 3,929 UI seniors who graduated with loans in 2012 had an average debt of $24,657, up from $17,058 five years earlier. That's lower than the national average — $26,600 in 2011, according to the Institute for College Access and Success.
Annual limits on federal student loans haven't been increasing, so "we're seeing the parents borrow more and more," Mann said. The average Parent PLUS loan debt for UI graduating seniors rose from $25,267 to $36,824 in that same span.
All but 40 of the 1,703 families who used PLUS loans in 2012 also had student Stafford loans, according to UI data.
"The parents borrow the difference," said Carrelli, who took out student loans while attending Xavier University.
Mann doesn't believe the lack of congressional action on interest rates will deter any students from attending the UI. The new rates apply to all colleges and universities, so the increase doesn't give any school an advantage. But it could deter students from attending college at all, he said.
Mann said his office hasn't received many phone calls or inquiries about the new interest rates from students and families.
"We've had a few, but not a lot. We aren't picking up any kind of sense that students are making a decision not to come to the University of Illinois based upon this. At least not so far," he said.
UI students enrolling this fall have already received their financial aid award letters, and the "vast majority" include a loan component, he said.
Almost three-quarters of all UI students — graduates and undergraduates — receive some type of financial aid, totaling more than $783 million annually. Almost half of that amount is provided by the UI, and 41 percent comes from various federal grants and loans.
In 2011-12, 18,024 students borrowed money through the direct federal student loan program, or almost 38 percent of the 47,684 students who attended during the fall, spring or summer terms. Of those, 14,458 were undergraduates.
The UI's loan default rate of 2 percent is well below state and national averages. The average for all four-year public universities is 6 percent, and the figure for Illinois schools is 8.6 percent, Mann said.