Money Management

Value of Loans

In 1986, the average Pell Grant covered 98% of average tuition. By 1999, the same Pell Grants covered only 57% of average tuition. In 1980, grants made up 55% of financial aid and loans made up only 41% of financial aid. By 2000, these numbers were reversed with grants providing only 41% of financial aid and loans providing 58% of financial aid.

Given the rise in the cost of education, the reduced purchasing power of Pell Grants, and the shift from grants to loans, many students and families have turned to student loans to pay for postsecondary education. If they cannot borrow money through the federal student loan program, they may borrow it from other sources.

Compared to home equity loans, personal loans, and credit cards, student loans are the cheapest way to borrow for postsecondary education. According to the U.S. Department of Education, in 1987, an undergraduate student who graduated with $8,000 in student loan debt and an interest rate of 9 percent could expect to pay about $4,200 in interest costs.

Today, if an undergraduate student graduates with $18,000 in student loan debt, thanks to lower interest rates and tax deductibility of student loan interest, the student still pays only $4,200 in interest.

This information provided by America Student Loan Providers.