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For graduates, student loans turn into an albatross

(Page 2 of 2)

Of the three major variables affecting student debt - tuition costs, the job market, and interest rates - the latter has the gloomiest forecast, says Jacqueline King, director of the American Council on Education's Center for Policy Analysis.

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While tuition prices continue to rise, the acceleration slowed this year, Ms. King says, offering a positive projection for future college students. And the job market is relatively healthy, she says, opening up more doors for graduates. But interest rates will increase on July 1, when federal loan programs move from a variable rate system to a higher, fixed rate. Stafford loans will jump from the current 5.3 percent rate after graduation to 6.8 percent. PLUS loans, designed for parents, will rise from 6.1 percent interest to 8.5 percent.

"The class of 2006 will not be affected by this increase, but the entering freshman class will borrow under this new rate," says King. "This could certainly have an effect on future graduates and how much they need to pay back once they are out of college."

Interest rates on private loans can climb well over 12 percent. But lending companies, such as Sallie Mae, attract students by offering them far more money than the cap placed on the federal loan program, thus allowing many to attend more expensive schools.

With hefty repayments in their future, however, many students, including Boston University graduate Lowery, are walking away from low-paying government, nonprofit, and teaching jobs.

"I really want to work in advocacy law," she says, "but from a practical perspective that's not going to happen. I just won't be able to pay back my loans."

Income for teachers is simply too low for many graduates, according to a report released last month by the State Public Interest Research Group. The study found that more than a third of borrowers who graduate from private, four-year colleges would face "unmanageable" debt on a starting teacher's salary, meaning they would need to set aside more than 8 percent of their pay to cover student loans.

More than half of black and Latino graduates would fall into this level of "unmanageable" debt, set by the lending industry.

Accumulating loan debt even pushes back many of life's milestones, according to a survey that Baum conducted in 2002 for Nellie Mae, a major student lender, which is now a subsidiary of Sallie Mae. The report found that 38 percent of graduates held off buying their first house because of student loans, 14 percent put off marriage, and 21 percent delayed having children.

"We are the first society in history to take our brightest and start them out in debt," says Allan Carlson, president of the socially conservative Howard Center in Rockford, Ill. "That's just stupid public policy. We should encourage them to grow, not hold them back."

Despite the uncertain forecast, college can be affordable if students and parents understand the potential pitfalls and plan wisely, Kamenetz says.

"People need to approach college like they approach purchasing a car," she says. "Different people can afford different models. Don't be deterred from going to college, but students need to be smart shoppers."