According to a new report issued by The Project on Student Debt, one-third of all college students who graduated in 2009 were carrying private student loans, and private student loans accounted for nearly one-fourth of all student loan volume in 2007-08. College students who graduated with private student loans owed about $12,500 in private loan debt.
Private student loans are credit-based, non-federal college loans issued by banks and private lenders. Unlike with government-issued college loans, the federal government does not guarantee private student loans and does not regulate the industry outside of standard lending laws.
Whereas federal student loans carry fixed interest rates, private student loans are typically variable-rate loans, with generally higher interest rates and without the flexible repayment options and borrower protections offered by federal loans.
The Project on Student Debt compares private student loans to credit cards insofar as the high, variable interest rates and the associated risks to borrowers.
Financial Aid Counseling Linked to Less Debt From Private Student Loans
In compiling student loan debt data for its report, The Project on Student Debt found that students who received additional financial aid counseling from their school about the availability of federal financial aid — which includes federal grants and low-cost federal student loans — tended to take out fewer private student loans than those students who did not receive such counseling.
This finding, say the researchers, suggests the need for more financial aid counseling at the school level. Students can benefit from financial guidance regarding college loans and college loan debt, and researchers at The Project on Student Debt recommend that financial aid counseling specifically address the differences between federal student aid and private student loans.
Recommendations for Greater Transparency of Student Loan Debt Levels
The report, “Student Debt and the Class of 2009,” is the latest issue in the annual survey published each fall by The Project on Student Debt, an initiative sponsored by the Institute for College Access & Success (ICAS), an independent nonprofit organization dedicated to making higher education more affordable and available to students of all backgrounds.
In addition to its proposal for expanded financial aid counseling for students, this year’s report makes additional recommendations aimed at providing students and schools with more complete and better accessible student loan data and information about student loan debt loads:
Cumulative data on total student loan debt loads for graduating students, which should include annual borrowing volume for both federal and private student loans, says ICAS, are needed to create a truer picture of the cost of college and the extent to which students are taking on student loan debt to pay for college.
Both private lenders and the National Association of Student Financial Aid Administrators support this type of certification, and most currently available private student loan programs offer only school-certified private student loans.
Instituting such a policy, says ICAS, will enable the consolidation of all student loan debt data for a single borrower. Student borrowers would be able to see, within a single location, their total current college loan debt load from both federal and private student loans and would be able to use that information to inform any further borrowing decisions.
In addition, the inclusion of private loans within the NSLDS would allow colleges and universities to assess the rate at which their students are using private student loans to pay for tuition and living expenses while in college. Knowing the uptake rate of private student loans may help colleges and universities make more scholarships and grant aid available to students or encourage schools to reduce the overall cost of attendance.
Collecting and publishing student loan repayment rates, student loan debt loads, and graduate debt-to-income information for all programs that prepare students for gainful employment, not merely a select troubled few, says ICAS, would provide a more accurate picture of program costs among higher education institutions as well as of the likelihood of finding gainful employment following graduation.
college loans, report: Student Loan Debt and the Class of 2009, National Student Loan Data System
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