IU students facing risks of high-cost private loans

One important aspect of college students’ lives is dealing with financial issues, even after graduation.

A report from Indiana Public Interest Research Group, a public interest organization based at IU, stated that Indiana college students are facing unnecessary financial risks by relying on unregulated private student loans to pay for college. On average, students graduate with $3,556 in non-federal student loans.

Stephanie Gogul, an INPIRG organizer, said private loans carry the risk of high-penalty fees and interest rates.

“A lot of students, especially those who go to for-profit schools, have private or non-federal loans,” Gogul said. “Those loans look more convenient to apply for, but they have no upper limit on their interest rates.”

According to the report, private-student lenders charge annual percentage rates as high as 18 percent, three times the average federal loan APR.

Gogul said that aggressive marketing strategies of private loan institutions contribute to the gross rise in private student loan borrowers. According to the report, nearly half of students at for-profit schools had private loans in 2008.

Gogul said private loans are different from federal government-subsidized loans because they start to accumulate interest once they are accepted, while federal loans do not collect in-school interests.

Gogul said students who go to for-profit schools usually take less time to finish their degrees, so they are highly vulnerable to private loans.

The INPIRG report found that students who attend for-profit colleges have, on average, higher debt levels than those who attend public colleges; $32,650 to $17,700, respectively.

The report suggests there’s no agency that serves as a watchdog to make sure borrowers are treated fairly. Gogul has called on Sen. Evan Bayh, D-Ind., to support the creation of a Consumer Financial Protection Agency, which would ensure that private student loans are fair and transparent to a borrower.

According to the report, if Congress enacts a strong Consumer Financial Protection Agency, it’s possible that Indiana students will enjoy fairer pricing and interest rates.

According to StudentLoanBorrowerAssistance.org, the private loans don’t have the more affordable, fixed rates and flexible repayment options that federal loans have.

According to the Web site, unregulated rates and terms make private student loans highly expensive and risky.

Associate Vice Provost Susan Pugh, who is also director of the Office of Student Financial Assistance, said the average default rate on Federal Family Education Loans and Federal Direct loans from 1992 to 2007 was 3.4 percent.

IU is ranked as a high-performing school because it has a lower default average, which is 5 percent nationally.

Pugh said that no public information on the default rates of these private educational loans has been released, and they have no data on the topic because the loans are collected privately.