Mark Kantrowitz, Publisher of FinAid.org and FastWeb.com, has released a new study that explores several reasons why some students do not "borrow federal first."
Kantrowitz reports that the most significant cause of private student loan borrowers failing to borrow from the federal Stafford loan program is failure to submit the Free Application for Federal Student Aid (FAFSA) - not a surprise. But he also points out that "more than 250 community
colleges, who disproportionately serve at-risk populations which are more likely to
default on student loans, have opted out of the federal education loan programs in order
to preserve eligibility for the Pell Grant. But many students at these colleges must still
borrow to pay for living expenses, despite the low institutional costs. This forces them to
borrow from higher cost private student loan programs."
Of those students who did submit the FAFSA:
- More than half (51.4%) of undergraduate private student loan borrowers with total debt less than $5,000 borrowed from private student loan programs instead of the federal Stafford loan program in 2007-08
- More than two-thirds (69.8%) of undergraduate private student loan borrowers with a net price after grants of less than $5,000 borrowed from private student loan programs instead of the federal Stafford loan program
- More than four-fifths (80.4%) of undergraduate private student loan borrowers attending colleges with a cost of attendance of less than $5,000 and more than a quarter (27.4%) of undergraduate private student loan borrowers attending colleges with tuition and fees under $5,000 borrowed private student loans instead of federal Stafford loans
- Two-fifths (40.7%) of undergraduate private student loan borrowers attending public 2-year colleges borrowed from private student loan programs instead of the federal Stafford loan program in 2007-08
The report contains recommendations for correcting these issues including:
- Simplifying the loan application process for unsubsidized Stafford and PLUS loans
- Improve student aid counseling at all colleges, especially public 2-year institutions
- Make submission of the FAFSA mandatory for all college students
- Adopt policy and statutory changes to permit colleges to participate in the federal
student loan programs without jeopardizing eligibility for the Pell Grant program
You can read the full report online.
Media Coverage
Analysis of Private Student Loan Borrowers Inside Higher Ed
Posted 06/09/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.
