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July 13, 2011

The Secret to Safer Student Loan Borrowing, MKay?

There is broad consensus that private student loans should be considered only as a last resort.  It’s just not that complicated. 

“Private student loans are bad, mkay?”

Substitute the phrase “private student loans” whenever Mr. Mackey says “drugs” and “alcohol” in this classic South Park bit, and you’ll catch my drift.
 

 

Many student and parent borrowers aren’t getting the message

Students borrow billions in private loans each year, in spite of the risks associated with private student loans.  And a majority of undergraduate private student loan borrowers could have borrowed more federal loans than they did.  That’s just wrong.

Colleges have a responsibility to inform borrowers about the risks of private student loans

When schools learn that a student or parent has applied for a private loan, they should contact the student or parent to explain the key differences between private and federal loans, especially when the borrowers haven’t exhausted their eligibility for safer federal loans.  

A new report from the Project on Student Debt at The Institute for College Access & Success (TICAS) identifies promising policies and practices from financial aid offices that are getting it done.  Report author and TICAS program director Matthew Reed shows that a promising practice involves counseling students who apply for private loans, before the student makes a final borrowing decision.   About half or more of students changed their borrowing plans after receiving information from their school about the differences between federal and private student loans.

By Heather | Category: Student Debt  
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