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48monday, April 23, 2012
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monday, aPril 23, 2012
Wells Fargo Education Connection Loan
sign by the
features:
Six-month grace period repayment schedule: 15 years interest: (Variable) 5.68 percent and up limit: $25,000/year Sallie Mae Smart Option Student Loan features:
Six-month grace period Three payment options: interest repayment (pay interest while in school) *fixed repayment ($25 per month while in school)
Private loans fill financial-aid gaps when students exhauste other options
W
hile the bulk of student aid at the University of Nebraska-Lincoln comes from government and university programs, some students are turning to loans from private institutions, such as banks or specialized lenders, to fill their personal funding gaps. For Samantha Luft, a freshman animal science major from Texas, out-of-state tuition provided the push to private loans, many of which are co-signed by her parents. “It’s kind of hell,” Luft said with a laugh, referring to tuition and fees that more than double in-state rates and reach $20,000 a year before room and board. Luft also falls within a gap that appears in federal aid, which is largely distributed based on financial need. Her parents make enough income that she was able to get only $2,000 in federal loans. Out of about $120 million in UNL student and parent loans in the 2010-11 academic year — the latest available — about $7 million were so-called“alternative”loans, according to information provided by Craig Munier, director of UNL’s Office of Scholarship and Financial Aid. That puts private financing of UNL degrees at just less than 6 percent of all loans, compared to a national average of about 20 percent, according to the Associated Press. Several UNL students said they were happy without private loans. “I’m glad, because they don’t sound like a very good deal,” said Dan Eschliman, a senior music and religious studies major. He relies on federal loans, he said, but added he’d heard private loans have higher interest and fewer benefits. “I was trying to stay away from them,” agreed
Alexandria Copeland, a freshman film studies major. “I was told you shouldn’t get loans, but if you do, you should get them from the school.” Indeed, while private loans may be helpful in attaining a degree, they sometimes come with a tougher path to repayment than the federal variety, Munier said. “They’re not regulated in the same way federal loans are,” he said, though he added it’s not a market free-forall, either. “It’d be more akin to other kinds of consumer loans.” For example, federal loans’ interest rates — the charge for receiving the money, usually a percentage of the original loan amount — are fixed for each loan’s lifetime and are at least partly subject to public will. Interest on private loans, on the other hand, can vary from half the federal rate to more than double, even while a student is still paying off the loan. Private loans also don’t generally have the same selection of repayment options that federal loans can bring. Nonetheless, private loans can be attractive for a variety of reasons, Munier said. Some students don’t fill out the Free Application for Federal Student Aid for personal reasons, co-sign a loan with their parents or aren’t making the academic progress necessary to get federal loans — at UNL, that means passing more than half of each semester’s courses. “All of those can be factors for why students choose to find alternative private loans,” Munier said. But turning to private loans, even as a last resort, doesn’t solve everything. For Luft, the price has become too high. “That’s part of the reason I’m not coming back next year, because it’s so expensive,” Luft said.“It’s going to be tough, but think it needs to happen.”
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*deferred repayment (pay nothing while in school)
repayment schedule:
15 years interest: (Variable) 2.24 percent to 10.12 percent limit: Cost of education, other aid
story by Dan Holtmeyer
Charter One TruFit Student Loan features:
Six-month grace period Three payment options: interest repayment (pay interest while in school) *fixed repayment ($25 per month while in school)
*deferred repayment (pay nothing while in school)
repayment schedule:
Luft is looking at colleges in Texas. She wants to go to veterinary school, she said, which will bring plenty of its own debt. Something had to give. “I would probably be in debt for the rest of my life (otherwise),” Luft said. “Especially since my parents are paying for it all, I feel like I’m being sort of selfish.” Past figures on UNL’s percentage of private loans weren’t available, Munier said, but the share would likely be larger if one aspect of federal student aid hadn’t changed in 2006. That year, federal PLUS loans, which originally went to parents on behalf of their children in college, were opened up to graduate students. PLUS loans have steeper interest rates but can be large enough to cover education costs left over from other aid. “Graduate and professional students were the largest borrowers of private, alternative loans,” Munier wrote in an email. “Today much of that borrowing has shifted to the Federal Grad PLUS loan program.” But Munier said he was concerned the percentage may increase if Congress allows the interest on subsidized Stafford loans to double back to its original, pre-recession level. “Private loans may, for some borrowers, appear to be more attractive,” Munier said, and those borrowers tend to be the most financially stable. “By splitting the risk pool ... that leaves then the higher-risk student borrowers only in the federal program.” The federal system depends on a mix of risk, Munier said, which allows the government to keep loans available and interest rates low for low-income students. Without this mix, securing a loan and staying in school could become more challenging for those students, Munier said.
Com p ari n g Private a n d Federa l Loa n s
15 years interest: Depends on credit score and repayment option (Fixed) 6.75 to 12.25 percent (Variable) 2.94 to 9.25 percent limit: Cost of education to other aid Federal Stafford Loan
Private loans have a wider variety of interest rates, which can add up to a higher cost than a federal loan over time. But private lenders also can fill in gaps in federal funding that arise in some circumstances. The UNL Office of Scholarships and Financial Aid’s website, www.unl.edu/scholfa, maintains a list of every lender that has loaned to UNL students. None of them pay to be placed on the list, according to director Craig Munier, and the lenders are listed randomly every time the page is refreshed. Here’s a list of several major lenders and their options, with the federal Stafford loan included for comparison. Note: Variable interest rates can change during payment. When it applies, * denotes the payment option chosen for each loan example.
features:
Six-month grace period Five repayment options: standard extended graduated income-based income-contingent repayment schedule: 10 years. This can be extended up to 25 years for some students. interest: (Fixed) 3.4 percent to 6.8 percent, depending on when the loan was given and whether it’s subsidized or unsubsidized. limit: $5,500 to $12,500/year, depending on year in school and legal dependence on parents.