Private student loans become more prevalent

08.27.09
By Nicholas Storie

College students and their families have long used loans to help fund a university education, but these days more people are turning to private loans, according to a new report.

The Project on Student Debt says that during the 2007-08 school year, 14 percent of undergraduates took out private student loans, up from 5 percent who did so in 2003-04.

Furthermore, the group's analysis found that nearly two-thirds (64 percent) of students who turned to private loans had not taken out all they could in federal Stafford loans, which have a lower interest rate and are typically more affordable.

"Private student loans are one of the riskiest ways to pay for college," commented Lauren Asher of the Institute for College Access & Success, which runs the Project on Student Debt.

In the report, the project said that the growing reliance on private student loans is troubling because they typically have variable interest rates that can be as high 18 percent, lack the consumer protections of federal loans and usually cannot be discharged in bankruptcy.

Students at for-profit colleges had the highest utilization of private loans, with 42 percent using this type of financing. Meanwhile, 25 percent of students at private universities took out private loans and 14 percent of students at public four-year colleges did so.

Asher said that the government and universities should do more to help keep students from taking out "unnecessary" private loans and steering them toward more affordable options.

More Credit & Debt Articles | News Home | Discuss in our Forum

Private student loans typically have a higher interest rate than federal loans.