The Project on Student Debt has released Private Loans: Facts and Trends, using data from the U.S. Department of Education’s National Postsecondary Student Aid Study (NPSAS), a comprehensive nationwide survey conducted every four years. Our analysis from 2007-08 reveals that two-thirds of private loan borrowers did not take out all they could in safer, more affordable federal loans. The fact sheet also found that a majority of private loan borrowers in 2008 attended schools with tuition and fees of $10,000 or less, and that African-American students were the most likely to take out private student loans.
Like credit cards, private loans usually have variable interest rates that are higher for those least able afford them – as high as 18 percent in 2008. But unlike credit card debt, private loans are nearly impossible to discharge in bankruptcy. They also lack important consumer protections that come with federal student loans. Private loan borrowing has slowed since the credit crunch, but these risky loans remain available from major lenders.
Among the findings:
- While experts agree that private loans should be used only as a last resort, the share of private loan borrowers who could have borrowed more in federal Stafford loans increased dramatically, from 48 percent in 2003-04 to 64 percent in 2007-08.
- Private loan borrowing is not limited to students at high-priced schools. In fact, the majority of private loan borrowers (63 percent) attend colleges with tuition and fees of less than $10,000.
- Among all racial and ethnic groups, African Americans are now the most likely to borrow private student loans. The percentage of African-American undergraduates who took out private loans quadrupled between 2003-04 and 2007-08, from four percent to 17 percent.
For more information about private loans, please visit Private Student Loan Publications and Resources