Recession Complicates Analysis of Loan-Limit Increases and College Costs

February 19, 2014

Because of the recession’s economic effects, it’s difficult to say how increases in the borrowing limits on federal Stafford Student Loans affected college costs, the Government Accounting Office says in a new report.

While college prices have risen consistently, and continued to go up after the Stafford loan limits were raised, starting in the 2008-9 academic year, the recession’s tumultuous and complex economic environment could have contributed to the increasing college price tag, according to the report (GAO 14-7), released on Tuesday.

In 2008, because of concerns that a college education might be an unattainable goal for those unable to afford higher tuition rates, Congress passed a law that allows students to borrow more through the federal Stafford Loan program. In 2008-9, the year the law went into effect, borrowers took out 44 percent more in unsubsidized Stafford Loans than in the previous year. The loan-limit increase allowed undergraduates to borrow an additional $2,000 a year in unsubsidized Stafford Loans.

The 2008 law also required a series of GAO reports assessing how the loan-limit increases were affecting tuition and private student-loan borrowing. Tuesday’s report, the last of the series, examined whether the loan-limit increases affected tuition, fees, and room and board prices at colleges and universities. It also analyzed the trends in private student-loan borrowing since the loan limits took effect.

The recession, which affected families’ employment, income, and net worth, made it difficult for the GAO to isolate its effects from those of the loan-limit increases to determine why students were borrowing more, the report says. Also, at about the same time the loan-limit increases went into effect, federal, state, and institutional aid available to students also increased, and those changes also may have influenced the amount of money students borrowed.

Although college prices continued to rise, and overall enrollment at both public and private institutions also increased, the report emphasizes that fewer students have taken out private loans and, on average, students have borrowed lesser amounts since 2008. About 1.3 million students took out private loans in the 2011-12 academic year, it says, down from 2.8 million in 2007-8. During this same period, the average amount that students borrowed in private loans decreased to $5,870, from $7,048.

Other factors may have also contributed to the changed private-loan landscape, the report says. Since 2008, private lenders have begun requiring borrowers to have higher credit scores and cosigners, making it more difficult to obtain private loans. Also, Congress enacted new protections to raise students’ awareness about private loans and colleges took additional steps to help students find alternatives to private borrowing, including increased institutional aid.