RENEE MONTAGNE, HOST:
And for one more year, college students can access a certain kind of loan for the low rate of 3.4 percent. It's known as a Stafford loan, and the interest rate was set to double, until lawmakers managed to reach an agreement to keep the rate low, which in turn will keep college more affordable for more people.
These are not the only loans that students can turn to help cover ever-rising tuition. To talk about how loans affect where students decide to go to college, we called Tim Maurer. He's a financial advisor who counsels families about college financing.
TIM MAURER: Happy to be here.
MONTAGNE: Why don't we start with how much access to these loans figure in decision-making by students and their parents about where to go to college?
MAURER: I'm not sure that actually plays much of a role. I think the decisions are made prior to looking at the funding, this is what we are going to do. I think it's already a foregone conclusion that they're going wherever they're going. Then they're trying to figure out what to do with the money.
MONTAGNE: OK. So a student who has their sights set on Princeton...
MONTAGNE: ...or UCLA...
MONTAGNE: ...or a smaller college, maybe less expensive than those two. That student applies and, once accepted, has to make this decision.
MAURER: Ordinarily, that's what I see the case. Now, you mentioned some of the Ivy League schools and the more expensive private schools. The Stafford loans that they've been talking about in the news these days, those loans only offer a maximum undergraduate level education of $23,000. So you could be talking about less than one year at one of the private schools you mentioned. So they're probably going to end up taking a look at other loans. Oftentimes, there's the parent-plus loans, which are already at a higher interest rate of 7.9 percent. And that's the loan that is on the parent, whereas the Stafford loan, that is the one that the student has themselves.
MONTAGNE: And the student loans, how easy are they to get, and then how easy are these other loans to get?
MAURER: Surprisingly easy to get student loans of some sort or another. Remember, it's not the strangest thing to imagine that the academic institutions who want the students to come, want them to pay the tuition, they actually do a great deal of helping in students finding the loans that are going to suit them best. And at the end of the day, if they can't get federally funded loans with federal aid, you have institutional loans directly from the school themselves, or some sort of outsourced institution.
MONTAGNE: We might want to remind people that student loans - inexpensive student loans came about as a way of encouraging students to go to college and making college affordable...
MONTAGNE: ...for students who deserved to go.
MAURER: Well, the fear I have is that even though the ubiquity of student loans was designed to give opportunity to people at all economic levels, the drastic increase in tuition prices, the result has been that who was been most impacted by that. It's actually the people who needed the help the most. It's middle-income and lower-income folks who will not be able to handle the debt load into the future. So that's the irony of the situation. Oftentimes, the best laid plans of mice and men oft go awry, and here we had a great idea that was intended to extend cheaper education to many, to give them upward mobility. The problem is now, we could actually be killing the whole opportunity for upward mobility with the extreme cost of tuition prices.
MONTAGNE: Well, what are the key things that students and parents ought to be considering then?
MAURER: There's very, very much of an emotional component to this decision-making process - not just for the kids. Of course, the kids visit three different campuses and say, oh, this is the one that feels good. The parents also have the sense - we, as parents, have the sense these days that it's our duty to provide our children with the education that's going to put that starry look in their eyes, that's going to inspire them on to great heights professionally. And so there's so much of that emotion wrapped up into it.
I absolutely value the experience of college for parents and students, but it's partly my job to bring it back down to earth and say, hey, look. After the four years - hopefully four years - is over, what you've got left is a diploma, and then you're out into the real world. For the most part, that diploma, especially for an undergraduate degree, is almost ubiquitous. Wherever you went, there's a lot of parity these days, even between Ivy League schools and the best in-state universities. So you have to be very, very careful about how much of your life and how much of your money you're going to invest in that educational experience.
MONTAGNE: Thank you very much for joining us.
MAURER: Thanks for having me.
MONTAGNE: Tim Maurer is a financial planner who teaches financial planning at Towson University in Maryland. Transcript provided by NPR, Copyright National Public Radio.