Halfway through her junior year of college, Crystal Nance suddenly needed to come up with $15,000 in order to graduate.
While federal loans covered Nance's tuition and fees, she resorted to private loans to pay for the rest. All told, Nance, now 23, borrowed $60,000 to finance her public relations and sociology degree from Drake University.
"My mom is still paying off her master's degree -- and that's from 10 years ago," she said. Nance works as a parent and family services coordinator at Northern Arizona University, where she is also enrolled in graduate school. "Am I going to be paying off these loans until I die?"
As a graduate student, Nance can defer paying back her federal loans until she's out of school. Meanwhile, the high interest on her private loans continues to accrue.
While she doesn't have any regrets, she now realizes she could have made a more informed choice. Nance views her private loan from Wells Fargo as a "last resort option" -- and with proper guidance, it's a decision she might have avoided.
According to a new report released earlier today by the Project on Student Debt at the Institute for College Access and Success, an independent, nonprofit organization that works to make higher education more affordable, colleges can play a significant role when it comes to reducing their students' reliance on private lenders.
"The majority of undergraduates who borrow with private loans could have borrowed more in federal loans, putting students and their families at unnecessary -- and at times extreme -- financial risk," said Lauren Asher, president of the Institute for College Access and Success and co-author of the report.
"Colleges play an important role in students deciding how to pay for college," Asher said. "We wanted to identify what colleges are doing to help students make informed decisions about this type of loan and avoid unnecessarily risky borrowing."
While federal loans allow for income-based repayment and loan forgiveness for public service, private student loans deny any such leeway. Aside from forgoing flexible repayment options, private loans typically also come with uncapped, variable interest rates that are often highest for those than can least afford them. They also cannot be discharged in the event of a bankruptcy.
Private loans cannot even be discharged in the case of death. "Federal loans follow you to the grave but private loans follow you both to and past the grave -- you can never escape it," said Asher.
Currently, the average college student graduates with $27,200 in debt, according to Mark Kantrowitz. He publishes the financial aid websites Fastweb.com and FinAid.org, and believes that total debt at graduation should not exceed a graduate's starting salary.
All too often, Kantrowitz sees students relying upon risky private loans when public funds are still available. Private loan borrowers currently account for 14 percent of all undergraduates -- nearly 3 million students. Using data from 2007-2008 National Postsecondary Student Aid Study, he found 1.8 million students either not borrowing the full federal limit or forgoing federal aid entirely, and opting instead to take out private student loans.
Kantrowtiz sees schools playing a critical role in the information-gathering process. "Lenders of private student loans are advertising and they're advertising aggressively," he said. "They get their foot in the door first. Schools have to do their best to circumvent that by intervening and intervening early."
But how much of the responsibility should be placed on the institutions themselves?
"There's an ongoing debate among financial aid administrators about how much of this is really our duty, our obligation," said Deanne Loonin, an attorney and the director of the National Consumer Law Center's Student Loan Borrower Assistance Project. "Whether or not there's a legal obligation, this has to do with self-preservation, and when schools make it enough of a priority, it can make a really important difference."
The report applauds numerous schools that rigorously counsel students against the dangers of private loans. Barnard College, for instance, recently reduced private borrowing by up to 75 percent after employing such intervention tactics.
Kathy Blaisdell, the director of student financial services at Mount Holyoke College, personally calls every student who wants a private loan certified by the school.
After peppering them with questions about maximizing federal eligibility, interest rates and loan terms, Blaisdell finds that "most students didn't have a clue." Such tactics commonly result in half of those contacted changing some part of their private lending plan, a figure Blaisdell views as a tremendous victory.
But such one-on-one interventions aren't limited to small, liberal arts colleges.
For Youlonda Copeland-Morgan, associate vice president for enrollment management and director of scholarships and student aid at Syracuse University, teaching students financial literacy is her personal mission.
The school recently pioneered an approach to helping students pay off existing private student loan debt while still enrolled in school. Syracuse offered grants for up to $10,000 a year in exchange for two hours of financial literacy training each semester.
"We need to make sure we're graduating our students and protecting their credit scores and helping them to make wise decisions," said Copeland-Morgan. "We don't want them to leave here in so much debt that they can't pursue the career of their dreams."
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