University Business - November 2008 - (Page 28)

FINANCIAL AID How legislation and other actions are helping students make informed decisions By Haley Chitty New Protections for Private Student Loan Borrowers INA NCI A L A ID A DMINI strators are leading the fight against misleading direct-toconsumer (DTC) marketing of private student loans, but it can feel like a losing battle at times. Fortunately, the recent reauthorization of the Higher Education Act and the efforts of New York Attorney General Andrew Cuomo have given financial aid offices new tools to protect students and parents who borrow private loans to finance higher education. At best, private education loans can provide students and parents with much needed additional funds to enable them to pay for higher education. At worst, private loans can be exploited by predatory lenders who pressure students and parents into excessive borrowing through high-interest loans that can make them ineligible for other, less expensive, financial aid. Any financial aid administrator can provide the anecdotal evidence of the poor student who is awarded a private loan with a 16 percent interest rate that exceeds the institution’s cost of attendance (COA), causing the student to lose out on other financial aid. Aggregate data on private loans can be hard to come by because these loans encompass the fastest growing sector of college financial aid, and because they are sometimes made without the financial aid office knowing about them. The American Council on Education (ACE) compiled some data on private loans. While the data is not complete, it offers a glimpse into some of the problems with these loans. F A provision to require private loans to be certified by the financial aid office did not make it into the final bill. According to ACE analysis of the U.S. Department of Education’s National Postsecondary Student Aid Study (NPSAS) data: • More than 10 percent of private loan borrowers don’t apply for other types of aid. • Nearly 25 percent of private loan borrowers did not borrow a Federal Stafford Loan. • Excluding students who don’t meet federal student loan eligibility requirements (such as noncitizens), 20 percent of undergraduate private loan borrowers did not take advantage of federal student loans before borrowing private loans. Half of these students did not file the required application for federal student loans. Many of the students and parents who fall victim to DTC marketing of private student loans do not receive counseling from the financial aid office. Because private loans are sometimes made directly to students, the financial aid office may not ever know the student is receiving these funds. ADDITIONAL LEGISLATION PROTECTIONS Although Congress did not implement all the borrower protections advocated by the National Association of Student Financial Aid Administrators and most of the higher education community, the Higher Education Opportunity Act (HEOA) did make some inroads to protect borrowers from the negative consequences of borrowing private student loans. Signed into law in August, the HEOA restricts some private loan marketing that can be misleading and requires lenders to disclose significantly more information about private loan alternatives. Congress considered provisions that would have required private loans to be certified by the financial aid office and allowed private 28 | November 2008

Table of Contents for the Digital Edition of University Business - November 2008

University Business - November 2008
Editor's Note
College Index
Company Index
Advisory Board
Behind the News
Sense of Place
Human Resources
Financial Aid
Money Matters
Community Colleges
Expansion, without the Red Tape
Coming to You by Video
Challenging Authority
Road Tour
What's New
End Note

University Business - November 2008