Students use private loans as they shoulder college costs from parents
David Linhardt | April 24, 2006 03:46 PM | Link
With college costs on the rise and more students responsible for paying for their own classes, students are maxing out the amount of money they can borrow from the federal government. David Linhardt explains where students go for more loan money when the cash flow runs dry.
Students are increasingly shouldering the costs of college from their parents, and they're at least partly using private education loans to do it, according to student aid figures from CollegeBoard.com and an April 10 article in The New York Times.
College Board, which collects and publishes student financial aid data, tracked a 734 percent increase in non-federal loans over the last 10 years. Over the same period, federal loans increased only 89 percent. Last year private lenders issued $13.8 billion in loans, which accounted for about 18 percent of all loan funds issued in 2005.
Students turn to private loans because they can only borrow from the government up to the cost of attendance at their chosen school.
Students make transactions at Commerce Bank's branch inside the Kansas Union. Commerce Bank is one of many financial institutions providing private education loans to students. Photo by David Linhardt.
Ginny D’Angelo, vice president of Commerce Bank, said she had definitely seen an increase in the number of loan applications from students. Commerce Bank operates a small branch inside the Kansas Union.
Private and non-federal loans as a percentage of total loans issued within the last 10 years. Graphic by David Linhardt.D’Angelo said Commerce Bank has experienced the same trend that College Board documented at the end of last year: an increase in non-traditional students who aren’t dependent on parental money, and simply more students paying their own way. Roughly 40 percent of undergraduates are non-traditional students, according to College Board.
“Especially the graduate population, students who go back and get their MBAs,” D’Angelo said. “We obviously hope the growth of student loans will continue.”
An online loan company, MyRichUncle.com, offers clear advice to those seeking private education loans: if you can get scholarships, grants, or loans from the federal government, then choose that before trying private loans.
The fine print explains why. Private loans from MyRichUncle.com or Commerce Bank typically come with higher interest rates—sometimes four times as high as loans from the Federal Direct Loan (FDL) program. Repayment schedules are shorter: a short-term loan from the University of Kansas Endowment Association must be repaid in full a year after disbursement.
Total amount of private and non-federal loans borrowed from 1995 to 2005. Graphic by David Linhardt.Commerce Bank has had such success with education loans in Missouri and Kansas that it began seeking new markets in Oklahoma and Arkansas in the last year. The bank aggressively targets the student population, sending bank representatives to individual schools to offer loan options to cash-strapped students.
Suzette Runyon, Lyndon junior, is among the growing number of students whose parents don’t pay for their children’s college expenses. Runyon’s parents told her before she finished high school that she’d pay for college. They wanted her to learn the value of a dollar, Runyon said, and to appreciate her time at KU.
Last year, Runyon took every loan dollar she could get from the FDL program, and added a $2,000 loan from KU Endowment on top of that.
“It’s really hard right now because I’m going to be a fifth year senior, and I’ll have to take out even more for my education degree,” Runyon said. “Going into education, I know it’s going to be really hard to pay back my loans.”
Linsie Eriksen, Aurora, Colo. sophomore, said education loans are hugely important for her. Without them, she could never attend college—much less an out-of-state school like KU.
“I didn't really have a choice when it came to paying for college, it was this or nothing,” said Eriksen. “My parents can't afford to send my brother or me to college, so we took the role of paying for college upon ourselves.”
College Board estimates that the average student who borrows money to pay for a bachelor’s degree with graduate with $15,500 of debt. Over 60 percent of public university students will graduate with some type of debt.
Though Commerce Bank continues to push its private loan program, D’Angelo acknowledges the drawbacks of non-federal borrowing.
“Alternative loans aren’t necessarily the best way to go,” D’Angelo said. “Students can get into a lot of debt.”
For more information:
KU Office of Student Financial Aid
College Board's website, including extensive student aid trends and college costs