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

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Private Loans and Choice in Financing Higher EducationSummary and implicationsFinancial aid offices are facing an increasing number of challenges when they packagefinancial aid for students. Although most financial aid administrators would like topackage aid consisting entirely of grants and federal student loans, the reality is thatthese sources of aid are limited and cannot fully meet many students’ financial need.Discussing the option of private loans and including them in students’ financial aidpackages has become much more common in recent years. Nevertheless, some financialaid offices remain hesitant to recommend private loans because of a concernabout students’ excessive borrowing and increasing debt levels.Colleges and universities’ responses to the use of private loans on their respectivecampuses have been varied; however, the decision to use a preferred lender list isbecoming increasingly popular. Many schools cite a need for standardization andefficiency in order to ease the financial aid processing burden. Another reason isinstitutions’ increasing comfort with trustworthy lenders and reliable loan products.As the private loan process becomes more streamlined at postsecondary institutions,financial aid administrators are questioning whether or not counseling, much like thatfor federal student loans, should be required for students obtaining private loans.Although there is little consensus on what the counseling should include, most aidadministrators agree that the institutions, students, guarantors, and lenders should allbe involved in the process.32
Chapter 4Who Uses Private Loans?In order to understand the extent and growth of the private loan market, it isessential to examine the types of students who are obtaining these loans, and thetypes of colleges and universities at which they are likely to be enrolled. In particular,policymakers often are interested in whether these loans are being used by “traditional”students or “non-traditional” students, by undergraduates or graduate/professionalstudents. This chapter explores these issues separately for undergraduate,professional, and other graduate students. 26 For each group, the following sectionsdescribe the demographic and enrollment characteristics of private loan borrowers,the sub-sets of students who are most likely to borrow private loans, and the studentswho are likely to borrow larger amounts of private loans. The analyses reflect theindividual characteristics associated with private loan borrowing. 27Most of the data in this chapter are drawn from the 1999-2000 NationalPostsecondary Student Aid Study (NPSAS), a nationally representative survey ofundergraduate, professional, and graduate students. Although the percentages andaverages may have changed since then, the data provide detailed information aboutthe students who use private loans.Overall, professional students are more likely to obtain private loans than graduateand undergraduate students. In 1999-2000, slightly less than 4 percent of undergraduatesobtained these loans, with an average amount of $5,100. Meanwhile, 16 percentof professional students and 3 percent of graduate students borrowed private loans,with average amounts of $10,076 and $9,140, respectively. 28 Estimates vary on the26Professional students are those pursuing degrees in the following fields: dentistry, medicine, optometry, osteopathic medicine,pharmacy, podiatric medicine, veterinary medicine, chiropractic, law, and theological professions. Other graduate students are thosepursuing all other programs, including master’s degrees, doctoral degrees, post-baccalaureate certificates, and other degrees. For thesake of simplicity,“other graduate students” are referred to as “graduate students” in the report.27The analyses do not attempt to identify the causes of private loan borrowing, but rather attempt to paint a picture of the types ofstudents who use private loans. This is an important distinction because many of the characteristics associated with private loanborrowing are related to each other. In order to separate the various relationships, a multivariate analysis would be necessary.28Data from other sources provide similar figures. For example, according to 1999-2000 SUFAPPP data (College Board and NASFAA2002), 7 percent of undergraduates received private loans during the study period. Responses from the web-based survey developedfor this report put the percentage of all students (undergraduate and graduate/professional) at about 8 percent overall, with anaverage amount of private loans of $7,741 for undergraduates and $8,582 for graduate/professional students.33
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