Can College Graduates Bank Future On Private Student Loans?

With the ever rising college costs, students are turning to “the riskiest way for paying for schooling”, as dubbed by an education organization: private student loans. They have been termed as “risky” since they are likened to credit card debt.

The danger with private student loans is the fact that they have a variable interest rate. For instance, a report submitted by the group called The Project on Student Debt found that undergraduates who took out these loans in the academic year 2003-04 at 5% interest ended up securing the same loans at 14% in 2007-08. The group reported that the worst thing was that over two-thirds of the people who borrowed privately did not exhaust their options of applying for what is regarded cheaper and safer – the federal loans.

Most students graduate with the a degree in the subject of their choice but a very few percentage of them get into the job market all smiles. A good example is Kristin Schlaud (with a law degree from Wayne State University and a master’s degree in commercial real estate from John Marshall Law School) who wonders whether her degrees were worth what she is going through currently. Three years down the line she is broke and in debt, owing almost $250,000.

College students need more protection, said Lauren Asher, president of the Institute for College Access & Success, the mother organization for The Project on Student Debt. She said that the federal government ought to prevent students from taking unnecessary private student loans; especially after the federal loans have been made so affordable – effect from July 1.

Apart from the fact that it is difficult to discharge the private student loans on claims of bankruptcy, they are cumbered with more disadvantages: the students who take out private loans are not eligible for payment deferments, loan forgiveness programs or income-based repayment options that federal loans offer.



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An Education in Student Loans

Graduation day should have been a happy one for Tyrone Bailey. The first in his family of three children to earn anything beyond a high-school diploma, Bailey, 24, received a bachelor's in criminal studies from Westwood College in Torrance, Calif., two years ago. But even while the day's pomp and circumstance played out, his thoughts turned quickly to the tough job market and the $20,000 in loans he borrowed directly from his alma mater that were set to accrue a whopping 18 percent interest rate.

Not long ago, low-interest student loans were as easy to come by as a pass to get out of gym class. But the economic downturn and ensuing credit crunch put an end to that. As relatively cheap, private bank and federally backed loans became harder to come by, some colleges, vocational schools, and online institutions filled the void by lending directly to students like Bailey. Loans from traditional sources like Student Loan Marketing Corp., commonly known as Sallie Mae, fell by more than 50 percent from 2007–08 to 2008–09 after years of rapid growth, according to the College Board.


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