LESSON LOANED WITH INTEREST RATES RISING AND NEW LEGISLATION PENDING, PAYING FOR HIGHER EDUCATION COULD BECOME MORE OF A BURDEN FOR STUDENTS.

Byline: Lisa M. Sodders and Evan Pondel Staff Writers

Mitzey Ramos knew early on that affording a college education would be just as challenging as the academics.

As an incoming freshman at California State University, Northridge, she had to grow up a little faster than the average student. When her peers were engrossed in Greek life, she was studying interest rates.

``I realized it was going to be impossible for me to get an education without taking a loan,'' said Ramos, 23, who plans to graduate in June 2005. ``And considering I am the first person in my family to go to college, loans were a learn-as-you-go process.''

With tuition skyrocketing - both Cal State and University of California undergraduates have seen a more than 60 percent increase in tuition over the last three years - more students and their parents will likely look to college loans for help. Thanks to relatively low interest rates, experts say right now is an ideal time for locking in a loan that will be easier to pay off come graduation.

Ramos has three loans totaling about $17,000. Upon graduation, she figures she will owe between $20,000 and $25,000. ``That's not too bad when you consider I've been in school for six years,'' Ramos said. ``And I probably won't start paying off the loans until I graduate. Who knows how long that will take?''

Most students take anywhere from 10 to 30 years to pay back their loans. Mark Brenner, executive vice president for College Loan Corp., said to supplement the payments, some borrowers are vying for Parent Loans for Undergraduate Students. Often referred to as PLUS loans, interest rates for this option are at 4.17 percent through 2005.

``Student loans have doubled in the last decade. And now that the cost of college is more expensive, the PLUS loan has become a popular alternative for parents,'' Brenner said.

Even though the time is ripe for college loans, pending changes to federal loan programs could force graduates to pay thousands of dollars through higher interest rates.

Expected to be passed by Congress early next year when it reauthorizes the Higher Education Act, the changes would prohibit recent graduates from locking in low, fixed-rate interest rates when they consolidate their debt.

Instead, they would have a variable rate, capped at 8.25 percent.

Backers of the new rule say it will free up $21 billion in federal subsidies over the next seven years for enrolled students, but opponents say it will further increase the already high cost of higher education.

``It's going to be a burden on students,'' said Kathryn J. Anderson, director of financial aid at California State University, Northridge.

``It could impact their ability to pay, and we could see a rise in default rates.''

Under the new terms, which could take effect as early as 2006, graduates could extend their repayment period to 20 years from 10 years to lower monthly payments. But that means a student with a $20,000 loan could pay an additional $7,807 in interest costs over a 20-year repayment period, according to The California Public Interest Research Group, a statewide, student-directed public interest organization.

``We're very concerned about any proposal that makes borrowing more expensive,'' said Merriah Fairchild, higher education advocate with CalPIRG. ``At a time when college costs are rising, we think Congress should explore ways to make loan repayment less burdensome for the students, not more expensive.''

At the university level, financial aid offices have long fought for students to get the best rates possible. Employing different formulas to understand the student, lenders have good reason to offer various types of benefits.

``But the most important advices we can provide is, complete the financial aid application before moving forward with anything else,'' said Ina Kaniowska, student loan coordinator at UCLA.

With the push of PLUS loans, many parents may be precluding their son or daughter from other loans. Kaniowska said simply applying for a PLUS loan could tie up information that is integral to other loan applications.

Of the myriad loan packages available to students, Stafford loans are among the most popular for students these days. The subsidized Stafford loan offers a 10-year repayment period, with the interest paid for by the government when the student is enrolled. Conversely, the unsubsidized Stafford loan accrues interest while the student is still in school.

Larry Zaglaniczny, director of congressional relations for the National Association of Student Financial Aid Administrators, said it's better to offer more subsidies to enrolled students than to recent graduates who are entering the work force.

U.S. Rep. Howard ``Buck'' McKeon, R-Santa Clarita, who leads a subcommittee working on the Higher Education Act, agreed.

``Our emphasis is on expanding access,'' McKeon said. ``(Graduates) already have their degree. The money we'll save, we'll give to students who are trying to get into school.''

McKeon said the savings will be used to eliminate loan origination fees, increase federal Pell Grants, and allow students to borrow more money in their first two years of college.

As for the pending legislation, a break will be offered to recent grads by allowing them to pay only the interest on their loans for the first two years of repayment.

Educators acknowledge that students in recent years have had the good fortune to take out loans when interest rates have been at 35-year lows. If rates were to rise suddenly, new students would in a sense be subsidizing students who were able to lock in at lower rates.

``For students, a lower fixed rate is a wonderful thing, but at what cost?'' asked Ronald Johnson, director of financial aid at UCLA.

In fact, despite the current period of low interest rates, a variable-rate loan actually would have saved students money over a fixed-rate loan in 13 of the last 18 years, according to the Congressional Research Service.

Opponents still argue that the changes will add just one more burden to students already strapped by college expenses.

Tom Kiley, a spokesman for U.S. Rep. George Miller, D-Martinez, the ranking Democrat on the higher education subcommittee, noted that most of the students who take out loans come from low-income families. Many move into public service jobs, like teaching, which do not pay high salaries.

``Rep. Miller has been talking about the `middle class squeeze,' and he sees this as a big part of it,'' Kiley said. ``When the economy really isn't favoring people who work for a living, why would you make it any harder for people to afford (a college degree,) the opportunity to do better, and get ahead?''

But before students or even their parents know if they are eligible for a loan, the Free Application for Federal Student Aid must be completed. Ramos said she filled out the form in about 30 minutes online. Then, she met with a financial aid counselor at the university. ``The process was pretty easy. I never felt that overwhelmed,'' she said. ``The challenge will be paying it all off.''

Average student loan debt has grown from a median of $6,449 in 1992-93 to a median of $15,375 in 1999-2000, according to the American Council on Education. The monthly payment on those medians increased from $75 in 1992-93 to $179 in 1999-2000.

Loans now make up 75 percent of all federal student aid, according to ACE. The venerable Pell Grant, which used to cover 75 percent of the cost of attending a four-year public university in 1978-79, covered only 42 percent in 2001-02.

Despite growing debt loads, the national student loan default rate has fallen to about 5.4 percent, compared with a high of 22.4 percent in 1990, largely because the federal government has become more aggressive about pursuing deadbeat students. But some opponents of the new rules fear student defaults may pick up if they are not allowed to lock into the lowest interest rates available.

Bethann Corey, director of financial aid at the University of Redlands, said sufficient state grants are also a concern. Students applying for a Cal Grant, California's response to financial aid, can receive about $8,300. Corey said students applying in 2003 could only receive $5,400. ``And the problem is students didn't know that number would increase until August. Most students apply for grants by May.''

For timing purposes, ``it would be nice to know if the governor was going to increase or decrease the grant before May in 2005,'' Corey said.

Lisa M. Sodders, [phone]

lisa.sodders(at)dailynews.com

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