Smart Borrower Blog

Government Student Aid Continues in Full Force

According to an article on Forbes.com, the number of American students applying for financial aid increased last year, and fortunately for them, so did the number and amount of government student loans.

The article says that 16.4 million students applied for government aid during the 2008/2009 school year, a 12 percent increase from the previous year. For the 2009/2010 school year, 15 million have already applied and a total of 20 million are expected to apply by the deadline, representing a 25 percent rise from last year.

“As far as the federal student loan program, the bulk of student loans, there ended up being some minor disruptions,” says Robert Shireman, Deputy Undersecretary of the Department of Education, “but no one went without loans.”

(I’m sure there are some anecdotal stories to the contrary.)

Apparently the Department of Education (DOE) got a bailout of its own last year that has made continued funding possible. Congress passed the Ensuring Continued Access to Student Loans Act (ECASLA) in May 2008 that increased limit on government loans and also allowed the DOE to purchase student loan debt from private lenders to encourage them to keep lending.

While some worry that the government is taking on too much debt in yet another sector of the economy, allowing colleges to continually raise tuition with the assurance that the government will help students pick up the tab, Shireman says that students themselves are keeping college costs lower by choosing the more affordable ones.

“We’re seeing indications of a lot more shopping, and it will cause institutions to scale back some of the frills,” he says.

Yet it hasn’t stopped the increase in tuition rates and professors’ salaries from rising more than the adjusted rate of inflation in the past year…