Nav: Home

College students' use of private loans drops by half

November 30, 2016

RESEARCH TRIANGLE PARK, NC -- A new report by education researchers at RTI International found that the use of private student loans dropped by half between 2008 and 2012.

Conducted for the National Center for Education Statistics (NCES), the study examines the use of private loans by college students over time and compares it to their use of federal loans. Private loans differ from federal loans because they originate from banks, credit unions or other commercial entities, and are not federally guaranteed. Like other consumer loans, the lenders set the terms and conditions of the loan, usually basing them on the market and the borrower's credit history.

"Generally private loans have stricter terms and harsher penalties for non-payment than federal loans do," said Jennie Woo, Ed.D., lead author and a senior education researcher at RTI. "Students who are eligible for federal loans are better off getting them instead."

The study found that 5 percent of undergraduates took out private loans in 2004. After peaking in 2008 at 14 percent, the percentage of undergraduate students who took private loans dropped by about half in 2012 to 6 percent. In contrast, the percentage of undergraduates who took out federal loans through the Stafford Loan program rose from 35 percent to 40 percent between 2008 and 2012.

This pattern held for students at all types of schools and for all income levels. The proportion of students who took out private loans was highest at private for-profit schools, where the proportion of private loan borrowers was three times higher in 2008 than in 2012. Similarly, the percentage of graduate students who borrowed private loans also peaked and then declined: from 11 percent in 2008 to 4 percent in 2012.

Several factors probably contributed to this change. As the financial markets seized up and the economy contracted in the financial crisis that started in December 2007, banks tightened lending standards and increased underwriting requirements. Many banks found student loans no longer profitable and dropped out entirely. The 2005 Higher Education Reconciliation Act, which increased the maximum amount that students could borrow in federal loans, also may have contributed to the change. And finally, removing private banks from the federal loan system may have lessened the confusion between federal and private loans for some borrowers.

"We know that borrowing opens up opportunities for students to attend college or university, and we are glad that students are seeking loans with better terms," said Erin Dunlop Velez, Ph.D., co-author of the study and an education researcher at RTI.

Data in the report are drawn from three administrations of the National Postsecondary Student Aid Study, which RTI conducts for the National Center for Education Statistics. The report is a follow-up to a 2012 study that drew from the previous administrations of NPSAS. You can view the report here.
-end-


RTI International

Related Banks Articles:

Finding new knowledge in history -- evaluating seven decades of ex situ seed regeneration
Publication of a comprehensive set of historical phenotypic data of wheat in Scientific Data.
When should banks chase debts? New method could help them decide
Banks face financial risks and uncertainty when deciding when to chase consumers who default on their credit card payments and when to let them go.
Embracing bioinformatics in gene banks
Scientists from the IPK have explored, within a perspective paper, the upcoming challenges and possibilities of the future of gene banks.
Sex sells: how masculinity is used as currency to buy sperm donors' time
Sperm banks in the United Kingdom and Australia use images and phrases associated with masculinity to attract donors because laws prohibit them from paying for sperm.
Early exposure to banking influences life-long financial health
Growing up in a community with or without banks has a long-term effect on how you build and manage credit, according to a new Iowa State University study.
More Banks News and Banks Current Events

Best Science Podcasts 2019

We have hand picked the best science podcasts for 2019. Sit back and enjoy new science podcasts updated daily from your favorite science news services and scientists.
Now Playing: TED Radio Hour

Erasing The Stigma
Many of us either cope with mental illness or know someone who does. But we still have a hard time talking about it. This hour, TED speakers explore ways to push past — and even erase — the stigma. Guests include musician and comedian Jordan Raskopoulos, neuroscientist and psychiatrist Thomas Insel, psychiatrist Dixon Chibanda, anxiety and depression researcher Olivia Remes, and entrepreneur Sangu Delle.
Now Playing: Science for the People

#537 Science Journalism, Hold the Hype
Everyone's seen a piece of science getting over-exaggerated in the media. Most people would be quick to blame journalists and big media for getting in wrong. In many cases, you'd be right. But there's other sources of hype in science journalism. and one of them can be found in the humble, and little-known press release. We're talking with Chris Chambers about doing science about science journalism, and where the hype creeps in. Related links: The association between exaggeration in health related science news and academic press releases: retrospective observational study Claims of causality in health news: a randomised trial This...