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Washington, D.C.--An increasing number of parents are depending on the equity built up in their homes to pay for their children's college education, the General Accounting Office reports.
The congressional watchdog agency reported that 21 percent of parents surveyed during 1993 and 1994 ¡ª the latest period for which data is available ¡ª said they used their home's equity to pay college expenses. That compares to 18 percent who reported they tapped into equity in 1988. Equity is the dollar value of a home minus whatever is owed on the home.
The average parent borrowed between $10,734 and $14,553 against a home equity lineof credit to help meet college costs, said Jay Eglin, GAO assistant director.
More people borrowing for education
Among borrowers using traditional equity loans, 7 percent borrowed for education compared to 5 percent in 1988, he said.
Excluding first mortgages, U.S. home equity debt totaled an estimated $255 billion with $110 billion in home equity lines of credit and $145 billion in traditional home equity loans.
Eglin said it is hard to determine exactly how many people used their home equity dollars to fund education, because "in many instances they applied for a home improvement loan."
As education costs rise, so do loan amounts
However, Eglin said with education costs continuing to creep up at an approximate rate of 5 percent a year, "We anticipate many more parents will be tapping their home's equity to meet college expenses." Colleges need additional funds to pay for new technologies, he said.
Other options are available--"education IRAs," and tax credit programs such as the Hope and Lifetime Learning programs, but Eglin doubts that few people will use them.
"The public really has little information on how and when to use them," Eglin said.
Education debt rising
In Federal Reserve Board surveys of U.S. households, the average education debt rose from 1.9 percent in 1989 to 2.5 percent in 1995. The surveys don't differentiate between debt accrued for elementary, high school and college education, he said.
While the cost of a college education increased 234 percent between 1980 and 1995, median household income only grew 82 percent, GAO researchers found. This has placed a greater burden on students to borrow money to pay for their own education, GAO researchers said.
Amount borrowed jumping each year
For instance, 60 percent of those graduating with a bachelor's degree from a public college borrowed at some point in their program during the years 1995-96 compared to 46 percent in 1992-93. The average amount borrowed climbed from $10,080 in 1992-93 to $13,269 in 1995-96.
The number borrowing to meet bachelor's degree expenses in private schools increased from 50 to 58 percent during the same time period. The amount borrowed climbed from $12,016 to $15,559.
During the same time cycle, the number of borrowers seeking graduate or professional degrees increased from 55 percent to 62 percent. The average loan jumped from $16,990 to $24,340, the GAO found, adding that students seeking their doctorate increase their average loan from $45,199 to $59,909.
More students work to foot the bills
To meet their college expenses, the GAO found that during 1995-96 more than 66 percent of full-time undergraduates worked 23 hours weekly to meet expenses. Students in professional programs worked an average of 20 hours weekly, while those in a master's or doctoral program averaged 25 to 30 hours weekly.
Of the students who did work, those who supported themselves worked an average of 28 hours weekly compared to 21 hours for those with family support, the GAO found.
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