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

Private Loans and Choice in Financing Higher Educationcontinued from the previous pageAt the same time, students who do not have remaining need (in other words, their EFCand aid together cover the cost of attendance) may still choose to obtain private loans orother types of funding. 15◗◗Some students may borrow private loans to cover part or all of their expected familycontribution because of their parents’ (or their own) inability or unwillingness to providethe full amount. 16Other students may borrow private loans to finance expenses above the cost of attendance(because most federal, state, and institutional aid is available only up to the COA). 17These private loans may be specialty loans for expenses such as bar exam preparation ormedical residencies; however, these expenses also may include lifestyle expenses such ascredit card debt or car payments.Although much emphasis has been placed on unmet need given the rising price of college,increasing college enrollments are evidence that students are managing to find the money to meettheir unmet need or are turning to other alternatives. For instance, many parents and studentschoose to finance unmet need with PLUS loans and/or private loans. Other students work whileenrolled, increase the number of hours they work while enrolled, or “stop out” from theireducational pursuits to work and save money that will allow them to return in the future. Somestudents reduce their immediate cost of education by enrolling part-time, and still others decidedto pursue their postsecondary education at less expensive colleges and universities. Whilestudents choose a variety of options, the available evidence suggests that an increasing number ofstudents are turning toward private loans to cover their unmet need or other expenses.15These are students who receive aid greater than their federally defined need; see next footnote.16Similarly, non-need-based loans available from state governments are available to cover EFC. Further, in some instances,federal student aid rules allow students and their families to obtain federal non-need-based loans (Stafford unsubsidized loansand PLUS loans) to cover their EFC (as long as they do not exceed annual and cumulative loan limits). Along with privateloans, the U.S. General Accounting Office (GAO) terms these non-need-based loans that replace EFC as “substitutableloans.” GAO (2003) recently found that of the 22 percent of full-time undergraduate federal aid recipients who receivedfinancial aid that was greater than their federally defined financial need in 1999-2000, most had obtained substitutable loans.17Because the majority of private student loans can only be certified up to the COA, students may forgo certification and havethe private loan funds sent directly to them. Lenders send certified student loan funds directly to the college or university.12