Private Loans and Choice in Financing Higher Education - College ...

Private Loans and Choice in Financing Higher EducationThe types of students who were more likely to borrow private loans also were likelyto borrow greater amounts, on average.◗◗◗◗◗◗◗Students who borrow private loans tend to have certain characteristics, includingenrollment on a full-time basis, attending high-priced institutions, and demonstratinghigh levels of financial need. For example, 73 percent of professional studentswho borrowed private loans faced total costs of $30,000 or higher and 85 percenthad financial need calculated to be $20,000 or more. In addition, the majority ofundergraduate students who borrowed private loans were financially dependenton their parents, and were “traditional” students pursuing bachelor’s degrees.Some groups of students were more likely to borrow private loans than their peers:those attending private not-for-profit institutions, those enrolling full-time, thosewho are relatively young, those who face higher costs of attendance, those withgreater financial need, and those who borrow the maximum Stafford loanamounts for which they are eligible. Professional students in general—and lawstudents in particular—were more likely to obtain private loans than undergraduatesor other graduate students.Even for groups of students who were “most likely” to borrow private loans, themajority of students did not necessarily borrow them. For example, less than a quarterof traditional undergraduates at relatively expensive, private four-year institutions whoborrowed the maximum Stafford loan amount for which they were eligible actuallyobtained private loans. This reinforces the notion that private loans continue to play amodest though important role in the overall student financing equation.Trade-offs may exist between obtaining private loans and other forms of financing.In particular, it seems possible that some students elect to work more hours ratherthan obtaining private loans, and others choose to borrow private loans ratherthan working at all, or working more hours. For example, of dependent studentswho worked during the school year, 82 percent of private loan borrowers workedpart-time while 18 percent worked full-time, compared to 72 percent of nonborrowersworking part-time and 28 percent working full-time.Students who decide to borrow private loans do so for various reasons. The reasonsmost commonly cited by financial aid administrators were related to financialneed, including unmet need, high costs of attendance, and federal loan limits.Other reasons cited for borrowing private loans include eligibility and lifestyleissues. For example, some students borrow private loans because they are noteligible for federal financial aid due to marginal academic progress, missed financialaid application deadlines, citizenship status, or other reasons. In other cases,parents or students may be unwilling to change their lifestyles, making privateloans an attractive option for covering educational costs.The role of parents in student borrowing of private loans is complex and multilayered.In a substantial proportion of cases (primarily for dependent students),parents are co-signers on private loans, and may even be helping students repaythese loans. This may enable students to attend an institution or program that ismore expensive than their parents could ordinarily afford. On the other hand,x