Julian Perry graduated from flight school with dreams of becoming an airline pilot and more than $40,000 in private student loan debt. The Mesa resident shelved his pilot plans to be closer to his wife and children, but pays about $450 each month for his training.

“It was about $40,000 originally and now it’s about $50,000, but we keep paying on it,” Perry said. “(The monthly payment) has gone up a little bit. I think it originally was $375 and it keeps creeping up. It eats you alive, but you can’t default on it.”

Kristen O’Rourke graduated with a doctorate from the Southwest College of Naturopathic Medicine. The Tempe resident owes thousands in federal student loan debt, and quit her practice after three years to become a full-time mom.

“You start paying them back six months after you graduate,” she said. “You’d rather not have to pay the money, but I think I got a good education and I think it was well worth it.”

With the flood of new college graduates now in the work force, those who borrowed to cover tuition soon will have to start repaying that debt. And that’s if they’re not required to start now.

Nationally, total student aid increased by 3.7 percent to $134.8 billion in 2005-2006, according to the College Board, a nonprofit membership association of more than 5,200 schools, colleges, universities, and other educational organizations. More than 50 percent of that aid was in federal loans.

“Loan aid is definitely increasing more rapidly than grant aid, particularly in the last five years,” said Patricia Steele, College Board research consultant. “The perstudent amount of lending is growing.”

In 2004, graduates from forprofit colleges had the highest median debt of $24,600, followed by private for-profit college graduates at $19,500 and public four-year college graduates at $15,500, according to the College Board. This does not include federal parent PLUS loans and credit card debt.

The average Arizona State University student who graduate in 2005-2006 with a bachelor’s degree accumulated $17,358 in student loan debt, up from $16,862 the prior year.

“The average debt for the typical student is not so overburdensome,” Steele said. “But there are a share of students for whom they’re taking an unreasonable amount of risk with the amount of loans they’re taking on, and it jeopardizes their future choices as far as their ability to repay it.”

MORE PRIVATE LENDING

Increasingly, students seek private loans, as opposed to federal loans, the College Board reports.

Private student loans now total $17.3 billion, growing at an average annual rate of about 27 percent in inflationadjusted dollars since 2000-2001. The trend toward more private loans is a “serious concern,” especially since there is no evidence suggesting these students have exhausted all of their federal loan options, Steele said.

“Generally, the interest rates on federal loans are locked in ... they’re artificially kept low through government subsidies,” she said. “And there’s a variety of default protections, so students could defer (repayment) for six months when they’re in financial difficulty. A lot of the private loans have shorter term limits, so you have to begin repaying them while you’re in school.”

Students aren’t required to start repaying federal loans until several months after graduation, said Craig Fennell, ASU’s director of student financial assistance.

“Private loan interest rates, repayment terms and fees can range from reasonable to very high, depending on the borrower’s credit history and score,” he said. “Private student loans require the borrower to be more careful in choosing the best lender and loan terms.”

TOO MUCH

The national student loan default rate for fiscal year 2004 was 5.1 percent, compared with 4.5 percent the previous year, the U.S. Department of Education reported. The default rate includes only federal loans.

Although climbing, the national default rate remains far below the record of 22.4 percent 15 years ago.

Defaults are more prevalent among college dropouts, as opposed to graduates, a study by the National Center for Public Policy and Higher Education shows.

The study examined a national sample of students who enrolled in college in 1995-1996, and then looked at their status by 2001.

Laura Perna, an associate professor in the University of Pennsylvania Graduate School of Education, co-authored the study. “We found that one-fifth of all borrowers drop out,” she said. “For folks who started at four-year institutions, those who drop out are more likely to be unemployed — 15 percent versus 7 percent — and more likely to default on their loans.”

Twenty-two percent of those who borrow and drop out default, versus 2 percent of those who borrow and obtain a bachelor’s degree, the study showed.

Differences in income may also play in role in the default rate among college dropouts.

PAYING IT DOWN

Perry looks forward to both paying off his loan and becoming a pilot someday.

“I look forward to using what I paid for, but for now it’s kind of on hiatus for awhile,” he said.

O’Rourke plans to one day begin practicing again, and said her degree was definitely worth the debt.

“I’d rather have a degree than pay (hundreds) a month for some super-size, superposh SUV,” she said. “It’s something I’ll always have.”

Creating a budget and managing spending are the keys to effectively paying down student loan debt while still saving for the future, said Neal Van Zutphen, Certified Financial Planner with Delta Ventures Financial Counsel in Mesa.

“For many graduates, it will be the first time they actually make a budget,” he said. “The next challenge is to learn to live within their means and look to their careers to develop earnings growth potential through performance and skills enhancement. This is where they will gain the ability to begin saving for retirement while funding other lifestyle goals as they manage their expenses to create additional cash flow from raises and bonuses.”