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Do recent college graduates regret the amount of funds borrowed for educational purposes?

With the cost of education continuing to rise at a rapid rate, it is more important than ever to look at loan options, loan sources, and the long run repercussions faced by students seeking an education in today's society. The government created a financial aid system to help disadvantaged students receive need-based financial assistance and also to provide assistance to middle class families through a guaranteed loan system. Loans are by far the largest source of aid even for the lowest income students that receive other financial assistance. (Gladieux and Hauptman 1995) This loan system has grown to encompass over one half of all available student aid (Gladieux and Hauptman 1995) and the amounts students borrow for an education continues to increase at astonishing rates. From 1989-90 to 1995-96 the total undergraduate Stafford Loans had increased from $2 billion to $17 billion. (Berkner, 2000) "An American Council of Education (ACE) study found that borrowing under federal loan programs for graduate and professional students at 347 institutions rose an astounding 47% between 1992 and 1994." (Kobliner 1995, p. 108). Between 1994 and 2000 (estimated figures), funds utilized for student loans increased from a total of $24.7 to $31.6 million dollars representing an increase of 27.7% over the period (U. S. Dept. of Education, Office of Postsecondary Education, unpublished data). In light of this rapid growth in student loans, students need to be aware of their loaning options in order to find the loans that best suit their needs and they should be aware of the responsibilities they assume when borrowing in order to complete their educations.

Loan Sources

Two kinds of federall loan programs exist, one being the William D. Ford Federal Direct loan also known as the "direct loan". Under this type of loan, the funds are lent directly by the U.S Government to the students. Another source of funding is the Federal Family Education Loan (FFEL) Program. The funds for this program are provided from banks, credit unions, or other lending institutions, but are guaranteed by the, U.S. Government. FFEL loans are used only if the school does not participate in direct loans. (The Student Guide from the U.S. Department of Education 2001-2002, pp. 1-2). Several different types of loans are offered by each of these programs.

Forms of Student Loans

Stafford Loans

Both programs offer Stafford loans. They can be either "subsidized" or "unsubsidized" loans. Subsidized Stafford loans are awarded on the basis of financial need, which is determined by calculating the student's Cost of Attendance and subtracting from this amount the Expected Family Contributions (EFC). This results in the amount of financial need to be provided by a loan. (The Student Guide, p. 6). Students are not charged interest on subsidized loans until they have been out of school for any reason for six months. The government also pays the accruing interest for all grace periods, forebearances, and deferments. (The Student Guide, p. 12).

Unsubsidized Stafford loans, on the other hand, are non--financial need based. They begin accruing interest at the time the disbursement is made and the student is responsible for payment of this interest. Dependent undergraduate students (still supported by parents and reported to IRS as a dependent) can only receive unsubsidized Stafford loans with a four year total amount of $23,000. An independent undergraduate student is eligible for a four year total of $46,000 in Stafford loans, of which only $23,000 may be in subsidized loans. Graduate students are eligible to borrow up to $18,500 per year or a total of $138,000 over their entire college career including undergraduate loans. Only $8,500 of the $18,500 per year and only $65,500 of the $138,000 total amount may be in subsidized loans.

The interest rates for Stafford loans fluctuate with t-bill rates, but they cannot exceed 8.25%. Both subsidized and unsubsidized loans are scheduled to begin repayment six months after school is stopped. (The Student Guide, p. 13).

Plus Loans

Plus Loans are also offered by both loan sources to parents in order to help their children attend college. The loan amounts for these loans cannot exceed the cost of attendance minus any grants or scholarships received by the student. The payments of these loans are scheduled to start 60 days after the loan is to be disbursed. They are paid while the student is still attending school. The interest rates for these loans are also variable but they are not to exceed 9%.

Perkins Loans

Federal Perkins Loans are low interest loans for students with excessive financial need. They are limited to a total of $15,000 for undergraduates and $30,000 for graduates including undergraduate amounts. (The Student Guide, pp. 23-24) Repayments for these loans start 9 months after leaving school or when a student drops to half time enrollment.

Repayment Methods

Direct Stafford Loans

Direct loans can be repaid in four different plans. The first payment option is the standard repayment. This plan is extended over 10 years with a minimum monthly payment of $50. The monthly amount is determined by the total loan amount. Another plan that can be used is the extended repayment plan. This plan schedule payment over 12 to 30 years depending on the loan amount and time selected. This plan will reduce the monthly loan payment amount, but it will raise the amount of interest paid due to the longer loan period. The graduated repayment plan can also be used. This plan begins with lower monthly payments at first and then it increases the payment generally every two years. It also can be repaid from 12 to 30 years depending on the total loan amount. The last repayment plan is the income contingent plan. The monthly payment for this plan is based on your yearly income and your total loan amount. Every time your yearly income increases so does your monthly payment. (The Student Guide, p. 15).

FFEL Loans

FFEL Loans have loan repayment methods similar in nature to direct loans. They also have a standard repayment plan, a graduated repayment plan, and a plan called the income sensitive plan that is similar to the income contingent plan under the direct program. Under the FFEL program it has a maximum repayment period of 10 years and a minimum of $600 must be paid annually. (The Student Guide, p. 17).

Study Purpose

There are many options in choosing a student loan. Sometimes this can be overwhelming to young students. Many of them think in terms of the present without realizing the debt they are undertaking. Students must become aware of how these loans can affect their lives and also those of the ones they love. Wise decisions made when originating the loan can make for a happier future. The purpose of this study is to determine whether recent graduates of Texas A&M University-Commerce would change their student loan borrowing patterns.

Study Delimitations

This study is delimited to the 631 graduates of Texas A&M University--Commerce from the summer and fall semesters of 2000. Further, since the Stafford loan is the major source of loans and since the students are responsible for repayment, the study was limited to those students who had received Stafford Loans.


The hypothesis of this study is that a significant number of graduates would change their borrowing patterns from what they did while in college. Further, it is predicted that the majority of those who would change their borrowing pattern would seek to borrow less than they did. This is due to the difficulties that students experience trying to repay their loans and meet their other financial obligations.

Study Procedures

In the spring of 2001, a total of 631 questionnaires were sent to the graduates of Texas A&M University-Commerce from the Summer of 2000 and from the Fall of 2000. One hundred and thirty four responses were received. Of these, 62 graduates received a Stafford Loan. The results from these 62 responses are reported in the following sections of this paper.

Study Results

There were 45 female and 17 male respondents. The ages of the respondents ranged from 25 to 47 and the amount borrowed ranged from $2,000 to $60,000. The classification of the 62 graduates when they originated their first Stafford Loan is indicated in Table 1.

The distribution of the total amounts borrowed by the students is indicated in Table 2. The average amount of the 62 loans was $10,975.40.

The graduates were asked whether they could have completed their degrees without the Stafford loan. Their responses are indicated in Table 3.

Thus, 38 (61.3%) or the majority of the graduates felt that they would have been able to complete their degrees even though 28 of them, (45.2%), indicated that it would have been difficult. Almost 40% stated that they would have been unable to complete their degree without having the loan available.

Borrowing Pattern

The graduates were asked whether they would change their borrowing pattern if given the opportunity. This was the key question to be used to test the study's hypothesis that a significant percentage of the graduates would borrow less if given another opportunity to do so. The respondents were asked whether they would borrow more, less or the same amount. The responses to the question are included in table 4.

These figures indicate that 61.3% of the graduates would change their borrowing patterns. This finding supports the hypothesis of the study. Most of the graduates (32 or 51.6%) who would change their borrowing pattern would now borrow less. Many would borrow the same amount as they had originally (24 or 38.1%). It was somewhat surprising that six of the graduates (9.7%), would now borrow more.

Borrow Less

Table 5 indicates how much less those graduates who would now borrow less would borrow.

Thirteen of the 32 respondents who indicated that they would borrow less did not stipulate an amount.

The four graduates who indicated that they would reduce their borrowing by more than $7,000 in Table 5 would reduce their loan totals by $10,000, $12,000, $13,000 and $25,000. The majority (14) would borrow between $1,000 and $5,000 less than they had originally.

The respondents who indicated that they would now borrow less were asked to indicate reasons why. The most frequent answer given was that "the loan was too hard to repay". Sixteen of the 32 who would borrow less selected this response. Thirteen of the 32 graduates who would now borrow less indicated that they did not need the amount of funds that they borrowed. Eight respondents stated that they did not understand what was involved with the loan when originated--such things as the interest rate and repayment options. Five former students indicated that they were unaware that they could borrow less than the maximum amount approved.

Those who would now borrow less were queried as to what they would have done to complete their education with a smaller loan. Nineteen of the 32 would have cut down on personal expenses. Eleven would have worked more at their jobs, while an additional 7 would have sought additional family assistance. Two who did not work while in college would have taken a job to be able to reduce their loan amount.

Borrow More

Six of the graduates indicated that they would have borrowed more than they did. Of these, four would have borrowed $5,000 more than they did. Another would have borrowed $3,000 more while the sixth respondent would now add $24,000 to his debt. Five of the 6 respondents indicated that they would now borrow more so that they would be able to spend more time on studies, while four stated that this would allow them to not work as much. Three of the 6 stated that they could have gone to school year round if they had borrowed more. Three indicated that they would have been able to participate more in school activities. One respondent selected the response of not having to rely so heavily on family and so that spouse would not have had to work.

Program Assessment

The graduates were asked to give their overall impression of the Stafford Loan Program. Their responses are recorded in Table 6.

Almost 40% reported that the program was "excellent" or "very good," while an additional 40% indicated that the program was "good". There seems to be a high degree of satisfaction with the program.

The respondents were asked what they would recommend that students do with respect to the program. Table 7 presents their responses.

The majority of the former students recommended only borrowing as much as you need. This would seem to be very good advice. Of concern, however, is the fact that 16% indicated that they would recommend avoiding the program.

Summary and Conclusions

The purpose of this study was to determine whether past recipients of a Stafford loan at the Texas A&M University-Commerce would change their borrowing patterns. The graduates of the Summer and Fall semesters of 2000 were surveyed. There were 661 graduates that were sent a questionnaire. There were 134 responses including 62 who indicated that they had had a Stafford Loan. Of these, 61.3 percent indicated that they would now change their borrowing patterns--9.7 percent indicated that they would borrow more and 51.6 percent indicated that they would borrow less. Most of the respondents who indicated that they would borrow less indicated that they would borrow between $1,000 and $5,000 less. This indicates a relatively high degree of satisfaction with the amount that they had borrowed--that they weren't too far off the mark with their loan amount.

Many of the graduates indicated that the loan was difficult to repay. Others indicated that they did not need as much as they had borrowed. The main avenues to continue their education with a smaller loan would involve cutting down on personal expenses and/or working more. Those who would now borrow more would do so in order to spend more time on studies, work less, and or be able to go to school year round.

The majority of the graduates evaluated the program as "good" or above indicating a high degree of satisfaction with the overall program. Most respondents felt that they could have completed their studies without a loan, but the majority stated that it would have been difficult. Almost 40% of the respondents indicated that they could not have completed their degrees without the loans.

Student loans have been reported to be a problem for university graduates. From the findings of this study it appears that most of the graduates surveyed were satisfied with the loan program and if they were to change the amount of funds that they had borrowed, most would have borrowed less, but that the amount would not be significant. They also indicated a high degree of satisfaction with the program and its important role in allowing them to complete their studies.
Table 1

Student Classification Upon Origination of Loan

Classification                  Number    Percent

Freshman                            15       24.2
Sophomore                           12       19.4
Junior                              19       30.6
Senior                               8       12.9
Graduate                             8       12.9
Total                               62      100.0

Table 2

Amount of Funds Borrowed

Amount Borrowed                 Number    Percent

1,000-3,000                        9       14.5
3,001-6,000                       21       33.9
6,001-9,000                        7       11.3
9,001-12,000                       6        9.7
12,001-15,000                     11       17.7
Over 15,001                        8       12.9
Total                             62      100.0

Table 3

Degree Completion Without Loan

Could Have Completed Degree     Number    Percent

Yes                             10        16.1
Yes, but with difficulty        28        45.2
No                              24        38.7
Total                           62        100.0

Table 4

Change in Borrowing Pattern

Borrowing Pattern               Number    Percent

Borrow Less                         32      51.6
Borrow More                          6       9.7
Borrow The Same                     24      38.7
Total                               62     100.0

Table 5

Borrow Less

Amount                          Number *    Percent

$1,000-3,000                         8       42.1
 3,001-5,000                         6       31.6
 5,001-7,000                         1        5.3
  Over 7,000                         4       21.0
                                    19      100.0

* based on 19 respondents.

Table 6

Impression of Program

The Program Was                 Number    Percent

Excellent                            9      14.5
Very Good                           15      24.2
Good                                25      40.3
Fair                                 8      12.9
Poor                                 5       8.1
Total                               62     100.0

Table 7

Recommendations For Students in the Future

Recommendation                    Number    Percent

Avoid the program                     10      16.1
Get as much money as possible          4       6.5
Only obtain the funds you need        48      77.4
Total                                 34     100.0


Berkner, Lutz, "Trends in Undergraduate Borrowing: Student Loans in 1989-90, 1992-93, and 1995-96" Education Statistics Quarterly, Summer, 2000.

Gladieux, Lawrence E., & Hauptman, Arthur M., (1995). The College Aid Quandary, Washington, D.C. Brookings Institution.

Kobliner, Beth, (1995). Facing 20 Years of Debt, Money, Nov. 108-114.

Student Guide Financial Aid, (2001-2002). U.S. Department of Education.

U.S. Department of Education, Office of Postsecondary Education, unpublished data No. 309. Student Financial Assistance: 1994 to 2000.


Business Administration and Management Information Systems Department Texas A & M University-Commerce Commerce, Texas 75429
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Author:Manton, Edgar; English, Donald
Geographic Code:1U7TX
Date:Sep 22, 2002
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