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

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Private Loans and Choice in Financing Higher Educationborrow federal loans instead. We still will be available to service students’ borrowingneeds.” Other lenders noted that regardless, students will need to borrow to financetheir education and agreed that federal guaranteed loans are students’ best option.Summary and implicationsAlthough private loans have been on the market for several years, their prevalence hasincreased in recent years as student demand for additional sources to financepostsecondary education has increased. Similarly, borrower demand and favorablemarket conditions also have encouraged growth in both the number and diversity ofprivate loan products available.Private loans share some similarities with federal student loans; however, the two typesof loans have important differences. While both types of loans are to be used specificallyfor financing postsecondary education and carry individual loan limits, privateand federal student loans vary with regard to their flexibility, risk level, terms andconditions, and rewards and services.Competition thrives in the private loan market because of lenders’ ability to creatediverse loan products. Whereas lenders may have focused on the private loan marketas a whole in the past, more lenders are now moving towards staking their claim inparticular segments of the growing market, most notably specific professional programsand international education. At the same time, lenders are finding that some oftheir private loan products with more favorable terms and conditions have startedoffering competition to federal student loans.Private lenders have worked to earn Stafford loan business while creating new privateloan products and tailoring existing ones. Lenders also have continued to work withstudents, parents, and schools to provide the best products and service and to helpstudents responsibly manage their increasing debt burden. Whether or not the privateloan market will be able to support the ever-increasing number of loan products remainsto be seen, but it is difficult to ignore the lender’s role in the expanding market.24
Chapter 3What Are Institutional Practices Regarding Private Loans?Financial aid offices across the country face a growing number of challenges whenit comes to packaging financial aid that will fully meet students’ financial need.Increased tuition and fees, decreased state subsidies for postsecondary education,and high demand for limited federal resources have led many financial aidoffices to develop new philosophies on how to educate students and families aboutfinancing higher education. This chapter describes the various practices financial aidoffices are using with regard to the following: packaging financial aid; responding toincreased use of private loans on their respective campuses, including the use ofpreferred lender lists; and counseling students about responsible debt management.PackagingFinancial aid offices and administrators have long played an important role inpostsecondary education, primarily by assisting students to achieve their educationalpotential by packaging appropriate sources of financial aid (NASFAA 1999). In manystudents’ and parents’ eyes, the financial aid office stands between the student’sadmission to and enrollment at the school. Financial aid officers, more than anyoneelse on campus, are in a position to responsibly advocate for students’ financial interestsat the institutional, state, and federal levels and to discuss quality consumerinformation with students and families.As the cost of postsecondary education continues to outpace federal sources of studentfinancial aid, campus financial aid administrators find it increasingly difficult toput together attractive financial aid packages for students. According to the 2001Survey of Undergraduate Financial Aid Policies, Practices, and Procedures (CollegeBoard and NASFAA 2002), approximately 63 percent of the students who applied forfinancial assistance had financial need (as defined by the federal need analysis formula).More troubling was that most students did not receive enough aid to meettheir full need. On average, financial aid of all types (e.g., grants, loans, work-study)and all sources (e.g., federal, state, institutional) covered only 72 percent of students’demonstrated need.25
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ReferencesA Report of the ABA Stude
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