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

Private Loans and Choice in Financing Higher Educationfour-year liberal arts college in New England has a policy of calling students todiscuss ways students can limit their borrowing and find options other than privateloans. A financial aid administrator at a large public university in the Southwestbelieves that individual counseling has helped limit students’ use of private loans:“One-on-one counseling makes a difference with some students. If we show themtheir total costs and the amount of money they would have to repay after school,they sometimes cancel their private loans.” A top-tier four-year private institutionin New England prefers to use tuition repayment plans to help limit private loanvolume. A financial aid administrator at this school also commented on the financialaid office’s approach to parents: “We try to get parents to understand thatusing PLUS loans is part of their responsibility in their partnership with theschool, the financial aid system, and their student.”For-profit institutions face their own unique set of challenges when packaging aid fortheir students. Many students at proprietary schools need private loans either becauseof their enrollment in expensive programs that may have high non-tuition costs orbecause of unfortunate economic circumstances. Financial aid administrators atproprietary schools also recognize that there is a stigma attached to their type ofinstitution that does not go unnoticed by lenders. An aid administrator at a proprietaryschool on the East Coast remarked: “Lenders make a lot of assumptions. Forinstance, because an institution happens to be a tech school, there often is an assumptionthat the students are of lower quality and therefore a higher risk to lenders.”Many proprietary schools and small four-year private liberal arts colleges that may notbe top-tier institutions have a more difficult time attracting lenders and attractive loanproducts than well-known schools. An aid administrator in the Northeast believed thatlenders provide better marketing, loan products, and service to large universities andelite institutions. She noted, “Smaller schools don’t have the kind of loan volumes thatattract lenders, so we can’t get the lowest rates or the better deals for our students.”These schools have used several methods to address the problem, with one of themore popular being a preferred lender list. Preferred lender lists contain a compilationof lenders and/or loan products that the institution either partners with orregards highly enough to recommend to students and families. In many ways a preferredlender list helps to level the playing field for institutions and student borrowers.Preferred lender lists have been around for several years and originated in response tothe lack of technology in the FFEL student loan process. Financial aid administrators,frustrated sorting through different loan application forms and various lender policies,started the preferred lender list to bring needed standardization, simplification,efficiency, and cost reduction to the student loan process (Greentree Gazette, March2000, p. 14). The same has been true for private loan preferred lender lists. Manyfinancial aid officers were struggling to manage the increased workload that comesalong with private loans. An aid administrator at a private four-year institution in theMidwest commented, “We’re processing so many different loans from so many differentlenders—private loans have really become an administrative burden!” Preferredlender lists have helped financial aid offices efficiently manage the processing burden.28