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

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Private Loans and Choice in Financing Higher EducationFigure 1.2: Growth in federal loan volume, 1991-92 to 2001-021991-921992-931993-94Academic Year1994-951995-961996-971997-981998-991999-20002000-012001-02$0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 $40.0 $45.0Loan Volume (in $ billions)Total Stafford and PLUSStafford SubsidizedStafford UnsubsidizedPLUSNote: Figures are in current dollars. Source: College Board 2002this additional source of federal loan aid meant that less attention was paid to privateloans, although the private market continued to exist alongside federal loans.More recently, however, the rising costs of postsecondary education leads to questionsabout how students are meeting their financial need as well as the adequacy of federalstudent loan limits. Both the Stafford loan and the Perkins loan programs have limitsfor student borrowers (see Figure 1.3 for limits in the Stafford program). Studentsmay borrow up to the cost of attendance (COA), 6 but the borrowed amount cannotexceed the maximum limit specified for the student’s year in school, and students alsomust not exceed aggregate limits. Federal loan limits have not changed much sincethe 1986 reauthorization of the Higher Education Act. Yet, as mentioned earlier,college prices have risen significantly during this period, leading to growing amountsof unmet need (see Box on page 11 for a discussion of unmet need). At the same66The Department of Education defines cost of attendance as the sum of tuition and fees; the cost of room and board or the livingexpenses for students who do not contract with the school for room and board; the cost of books, supplies, and miscellaneousexpenses, to include a reasonable amount for a personal computer; and an allowance for transportation. Cost of attendance issometimes referred to as total price of attendance in the literature on higher education financing.
Private Loans and Choice in Financing Higher EducationFigure 1.3: Federal Stafford Loan LimitsYear in School Dependent Students Independent StudentsFirst $2,625 $6,625 (no more than$2,625 subsidized)Second $3,500 $7,500 (no more than$3,500 subsidized)Third $5,500 $10,500 (no more than$5,500 subsidized)Graduate/Professional Students$18,500 each academic year(no more than $8,500 subsidized)*Students in medical, dental, andother health profession programsmay borrow up to $38,500 per year(no more than $8,500 subsidized)Fourth $5,500 $10,500 (no more than$5,500 subsidized)Cumulative $23,000 $46,000 (no more than$23,000 subsidized)$138,500 (no more than $65,500subsidized); debt limit includesundergraduate loansSource: ED 2003btime, interest rates and other terms on non-federal loans have become more comparableto federal student loans. In this environment, private loans are once againreceiving increased attention as one of the many options students are turning towardto cover their unmet need. In fact, estimates of total private loan volume show thatprivate loan use has increased significantly since the mid-1990s.Estimates of private loan volumeAlthough anecdotal evidence suggests that the use of private loans is a growing part ofcollege financing, the total loan volume has proven difficult to estimate. While each ofthe following approaches has some methodological flaws (see Box on page 9 for adiscussion of sources and methodology), taken together they provide insights aboutthe extent of, the changes in, and the distribution of private loan volume.In 1995-96, the College Board began including non-federal loans from both private andstate sources in its annual survey of aid available to finance postsecondary education.Based on an informal poll of the largest non-federal loan sponsors, the College Board(2002) estimated a total private loan volume of $1.1 billion in 1995-96 and $5 billion in2001-02 (the latest year available). This suggests an increase of 355 percent (289 percentwhen adjusted for inflation) over this time period. According to their sources, morethan half of the private loan volume went to graduate and professional students.Nationally representative data from the National Center for Education Statistics(NCES) also can be used to estimate private loan volume for the years 1995-96 and7
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Chapter 5Why Do Students Obtain Pri
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ReferencesA Report of the ABA Stude
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