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

More documents

Recommendations

Info

Private Loans and Choice in Financing Higher EducationThis recent significant rise in private loan volume and the approaching reauthorizationof the Higher Education Act (HEA) have brought greater attention to studentborrowing for postsecondary education. Understanding what types of students areobtaining private loans and their reasons for borrowing these loans is imperative forfuture policymaking at the government, institutional, consumer, guarantor, andlender levels. Yet very little research has explored three key aspects of the issue:◗◗◗Private loan market. The nature of the industry (including the major players,most of which also offer federal student loans), the competition among privatelenders and loan products, and the incentives to offer favorable terms andconditions to students, parents, and schools are the principal features of theprivate loan market.Practices of financial aid offices. As key intermediaries on campus betweenstudents and the institution, aid administrators face the challenge of balancing thegoal of limiting students’ debt burdens against the need to facilitate choice instudents’ financing options.Perceptions of students and parents. Students and parents have their own pointsof view which take into account perceptions of debt, choices of institutions andenrollment patterns, and trade-offs among financing options. These perceptionsimpact the types of students who obtain private loans, as well as the reasons thosestudents (and parents) decide to borrow.This report advances the discussion of private loan borrowing by exploring the issuefrom these various perspectives. By bringing together many of the existing datasources on private loans and contributing new original research and analyses, it isFigure 1.1: Growth in loan volume, 1995–96 to 2001–02$45.0$40.0$41.31995–96Loan volume (in $ billions)$35.0$30.0$25.0$20.0$15.0$10.0$5.00346 % increase$5.0$1.1Private Loan Volume49 % increase$27.6Federal Loan Volume2001–02Note: Figures are in current dollars. Source: College Board 2002.2
Private Loans and Choice in Financing Higher Educationpossible to paint a comprehensive portrait of the private loan sector (see Box on page9 for details on data sources and methodology).This chapter continues by briefly exploring the history of private loans and providingseveral estimates of private loan volume. Chapter 2 describes the types of private loanproducts available, why lenders create these products for various segments of thestudent population, and how private loans compare to federal student loans. Thechapter also explores the idea that competition among loan products drives lendersand the industry. Chapter 3 discusses institutional responses to private loans as theyrelate to financial aid packaging, the evolution of preferred lender lists, and debtmanagement counseling for students borrowing private loans.From there, Chapter 4 identifies the types of students obtaining private loans at boththe undergraduate and graduate/professional levels. It is clear that the growth inprivate loan volume is not equally distributed across the student population, butinstead appears that private loans are being used to address the needs of specificgroups of students. Chapter 5 then looks at the reasons, from the perspective offinancial aid administrators, that particular types of students obtain private loans.The report concludes by examining the unanswered questions and policy implicationsregarding private loans. The current reauthorization of the Higher Education Act(HEA) figures prominently given the discussions about whether federal loan limitsneed to be raised. These discussions cannot take place without acknowledging the rolethat private loans are playing in financing postsecondary education.A brief history of private loansCollege students today have a variety of financing options for postsecondary education,more than at any other time in U.S. history. Student loans from federal, private,and other sources are a crucial component of these funding options, and their importancehas escalated over time. In many respects, since World War II the history ofprivate loans in this country has been intertwined with changes in federal policyregarding financial aid, and federal student loans in particular. Although the relationshipis complex, generally, private loans gain more visibility when federal student aidprograms begin to lag behind college prices and tend to be less prominent duringperiods when federal student loan volume increases more rapidly.Before the federal financial aid system began evolving during the mid-twentiethcentury, low-income students, if they enrolled in postsecondary education at all,generally attended local state supported schools (many of them two-year institutions)that had low tuition and fees. 1 The Servicemen’s Readjustment Act of 1944 (morecommonly known as the GI Bill) and the National Defense Student Loan Program(NDSL, which later became the Perkins Loan Program) were the first steps in theprovision of federal aid to college students (Archibald 2002). However, many familiesdid not have access to borrowing through NDSL; some were able to turn to other1The terms “tuition” and “tuition and fees” are used interchangeably in this report.3
Page 3: Private Loansand Choice inFINANCING
Page 7: Table of ContentsExecutive Summary
Page 10 and 11: Private Loans and Choice in Financi
Page 66 and 67:
Private Loans and Choice in Financi
Page 68 and 69:
Page 71 and 72:
Chapter 5Why Do Students Obtain Pri
Page 73 and 74:
Page 75 and 76:
Page 77 and 78:
Page 79:
Page 82 and 83:
Page 84 and 85:
Page 86 and 87:
Page 88 and 89:
Page 91 and 92:
ReferencesA Report of the ABA Stude
Page 93:
Page 96 and 97:
Page 98 and 99:
Page 100 and 101:
Page 102 and 103:
Page 104 and 105:
Page 106 and 107:
Page 108 and 109:
Page 110 and 111:
Page 112 and 113:
Page 114 and 115:
Page 116 and 117:
Page 118 and 119:
Page 120 and 121:
Page 122:
show all

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

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?