From the News You Can Use Archives 08/27/07
Why Choose Private Loans?
By Ian Crawford, Web Communications EditorThere's little doubt that private loans have emerged as a significant part of students' higher education funding.
- In 2005-06, private loan volume totaled $17.3
- Private loans now account for 20 percent of all education borrowing
- Private loans are the fastest-growing student financial aid component
But who are these borrowers who take out private loans?
A profile of this growing population is provided in a new report, Who Borrows Private Loans by the American Council on Education (ACE), analyzing data from the Department of Education's National Postsecondary Student Aid Study.
For the Federal Family Education Loan (FFEL) Program the most striking finding is that one in five undergraduates take out private loans when they were eligible for a lower interest rate and more flexible payment option federal loan. According to the report's authors, the main reason for not receiving FFEL loans is that students did not file the FAFSA.
The ACE report lists possible reasons that private loan borrowers opt out of the FFEL program:
- Simpler application processes for private loans
- Lack of comparative information on costs and benefits
- Misperceptions about eligibility criteria for federal student loans
- Comparable introductory rate offered by a private program
The conclusion to the report includes a recommendation for action:
“The proliferation of loan programs, each with its own marketing information, reinforces the need for clear, unbiased consumer information. This responsibility will only become more important—and more challenging—as the private loan market continues to grow. Meeting students' and families' needs for information on the wide array of college financing options will require heightened efforts by government, lenders, colleges and universities, journalists, and guidebook publishers.”
Who Borrows Private Loans- the American Council on Education (ACE)
Story posted August 27, 2007.
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