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

Private Loans and Choice in Financing Higher EducationLender and guarantor relationships with students,parents, and schoolsPrivate lenders who have maintained a competitive presence in the student loan market ingeneral, and the private loan market in particular, have done so not only because of theproducts they offer but also because of the services they provide to students, parents, andschools. Lenders know that competitive products are required to be selected for schools’preferred lender lists and the highest level of customer service is essential to remain onthe schools’ lists. One of the largest private lenders commented: “We take an overallservice approach in our relationships with schools. We work with the schools as an educationalpartner to determine how to best meet their needs.”Beyond the services and rewards discussed earlier in this chapter, private lenders aremaking concerted efforts to help students responsibly manage their increasing debtburden. Lenders are increasing the amount of time they spend on campuses anddeveloping materials that will provide effective entrance and exit counseling forstudent borrowers. In addition, some lenders are beginning to provide counselingresources that relate specifically to private loans and the importance of building goodcredit. Many lenders recognize that some parents feel more comfortable co-signingprivate loans for their students rather than taking out loans themselves. While mostlenders do not know whether the parents ultimately pay off the student’s private loan,or whether the student is entirely responsible for the loan’s repayment, lenders arecognizant of the student’s accumulating debt.Loan guarantors—the frequently invisible agencies that insure lenders against losses dueto a borrower’s default, death, disability, or bankruptcy—also are beginning to demonstratea more public commitment to student borrowers. While a few of the oldest guarantorshave long been committed to public service and offered pro bono support to students,many more are now asking what value they can add to the student borrowingexperience. In many cases, this value can be found not necessarily in providing studentswith additional information, but rather in providing students with information at the righttime. A representative of a large guarantee agency noted, “Students are getting the rightinformation, but they’re getting it at the wrong time.” But, many more guarantors arenow providing timely and useful information to students by intervening and suggestingthat students receive advice and guidance a month before their loans go into repayment asa possible way to curtail loan defaults and to assist students in building good credit.HEA reauthorization and its implications for lendersSeveral private lenders had thoughts on the approaching HEA reauthorization. Mostlenders acknowledge that if federal loan limits are raised, there will be some decline inprivate loan borrowing. Many of the large private lenders do not believe such anincrease would be detrimental to their companies. One well-known lender commented:“We’ve experienced loan limit increases before, most recently in 1992 whenthe graduate loan limits were increased to $18,500 per year. Increased federal loanlimits most likely would only change the proportion of federal and private loans in ourportfolio. It’s assumed that students who might borrow private loans would now22