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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

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IBR

Help is here!

The Income-Based Repayment option for federally-backed student loans went into effect July 1. It can help borrowers keep their loan payments affordable with payment caps based on their income and family size. For most eligible borrowers, IBR loan payments will be less than 10 percent of their income - and even smaller for borrowers with low earnings. IBR will also forgive remaining debt, if any, after 25 years of qualifying payments.

To apply for Income-Based Repayment, contact your lender directly. If you have Direct Loans from the U.S. Department of Education, start here. If you do not know who is servicing your loan, check the National Student Loan Data System database.

For more information about income-based repayment and public service loan forgiveness, please visit IBRinfo.org.

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NOW on PBS focused on student debt in America, following an unemployed single mother in Baltimore with over $70,000 in student loans. The Project on Student Debt was featured. Click here to visit the PBS website

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Information on IBR now comes in cartoon form! Check out our first-ever video, "Ditch Your Debt Gremlin," a two-minute animated introduction to IBR. Please share it on Facebook, email it to everyone you know, link to it from your blog, etc., to help get the word out about Income-Based Repayment before it becomes available on July 1.

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Top 10 List
We’ve updated our Top 10 List of student loan tips for students preparing to graduate and enter “the real world.” Many students are looking at their student loans more closely now than they ever have before, and wondering how they will handle the burden. Our tips can help young people keep payments affordable, avoid fees and extra interest costs, and protect their credit rating. Click here to read the Top 10 List

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The Project on Student Debt and Income-Based Repayment were both cited in a recent report "Repaying Student Loans In Tough Times" on CBS' The Early Show. Watch the clip below

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In direct contrast to federal efforts to increase college access during the current recession, today Governor Schwarzenegger proposed eliminating all new Cal Grants, along with deep cuts to public university systems and other essential state programs and services. The Cal Grant program has been an integral part of California’s commitment to college access and affordability for more than 50 years. Since 2001, all qualified graduating high school students have been guaranteed a Cal Grant.

“The Governor’s alarming threat to eliminate Cal Grants sends a discouraging signal about college affordability to all Californians,” said Lauren Asher, acting president of the Institute for College Access & Success. “Students and families are counting on Cal Grants in these tough times, and the proposed cuts will wreak havoc with college plans for this fall.”

The Governor seeks to cut approximately $250 million from the state budget by:

  • Eliminating all new Cal Grants for students at both public and private colleges; and
  • Reducing the value of renewal Cal Grants for all returning University of California (UC) and California State University (CSU) recipients by lowering the share of enrollment fees their grants will cover. (Renewal Cal Grant recipients at other colleges would not experience cuts.)

We estimate that more than 200,000 students statewide – over two-thirds of all current students offered Cal Grants – would lose all or part of the Cal Grant they were counting on to help pay for college this fall. These students will see their financial aid packages reduced by between $576 and $9,708. Based on our analysis, here is a snapshot of these high- achieving, financially needy students and what is at stake for them.

At least 118,300 students would lose their entire grant, worth up to $9,708, this fall: Eliminating allnew Cal Grants would deny approximately 118,300 students access to aid dollars they needed and expected for the 2009-10 academic year. These students have very low to moderate incomes, and vary greatly in age and type of college, although nearly half would have attended community colleges.

  • 26,000 students face cancelled Cal Grant A offers. A typical Cal Grant A student has a 3.45 grade point average (GPA) and a family income of $48,733.
  • 84,500 students face cancelled Cal Grant B offers. Cal Grant B students, who receive 70% of new awards and would therefore be among the hardest hit, come from much needier families. A typical Cal Grant B student earns slightly above a 3.0 GPA, and has a family income of $17,791.
  • 7,800 students face cancelled Cal Grant C offers. A typical Cal Grant C student has a 2.67 GPA and a family income of $21,859.
  • The elimination of new awards affects both young adults and older students: 88,000 new High School and Transfer Entitlement students, whose average age is between 18 and 22, would lose their grant offers, as would 30,300 new Competitive and Cal Grant C students, whose average age is between 29 and 33.
  • Eliminating new awards affects students at all types of public and private colleges, but community college students would lose the largest share – 45 percent – of new Cal Grant offers.
  • Cal Grants A and B provide four years of eligibility for students, including transfers from community colleges to four-year schools. An estimated 110,500 students would not be able to receive these new grants in 2009-10, and over four years could miss out on as much as $38,000 each in needed aid.

At least 90,000 returning students would lose part of their Cal Grant this fall: An estimated additional 90,000 UC and CSU students would see their promised renewal grants reduced by up to $600 for 2009-10, a result of the Governor’s proposal to eliminate support for fee increases.

“The loss of Cal Grants will push lower income students off the college track, delay their progress, or leave them even deeper in debt as they struggle to make ends meet. Making it harder for Californians to get the training and education they need puts our state’s troubled economy at even greater risk, now and in the future,” said Asher. The Public Policy Institute of California recently found that California needs more than a million new college-educated workers by 2025 to protect the state economy from decline.

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As July 1 (the first day the Income-Based Repayment option becomes available for borrowers) draws closer, coverage of IBR and Public Service Loan Forgiveness is ramping up.

The Institute's acting president Lauren Asher was featured in a recent USA Today article focused on IBR. An excerpt:

Starting July 1, borrowers will have a new option: a repayment program that caps monthly payments based on income. It targets borrowers who would have a hard time paying basic living expenses if they had to make standard monthly payments on their loans, says Lauren Asher, acting president for the Project on Student Debt. Under the income-based repayment program, such borrowers will never have to spend more than 15% of their discretionary income — an amount based on federal poverty guidelines — on student loan payments. Most who qualify for the program won't spend more than 10% of their income on student loans. Those whose income falls below 150% of the poverty level (see box) won't be required to make any payments, Asher says.

Read the entire article here

Additional Coverage

For more information about Income-Based Repayment visit IBRinfo.org

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The Institute for College Access & Success has updated the fact sheet "Quick Facts About Financial Aid and Community Colleges, 2007-08," where we focus on community college students who apply for financial aid and attend full time.

About one in four full-time college students in the U.S. -- 2.2 million students -- attends a community college. Of full-time community students who applied for financial aid, 80 percent did not get as much aid as they needed in 2007-08. We also found that although a relatively small percentage of community college students take out private student loans, these borrowers were much more likely than their peers at four-year institutions to miss out on cheaper federal loans.

Additional findings from the fact sheet include:

  • While community college students are more likely to receive federal Pell Grants than four-year college students because of their lower incomes, they are less like to receive state or school grants, or federal work-study.
  • Community college students are most likely to have "unmet need" after taking advantage of available sources of financial aid. For these students, the gap between what they can afford, including aid, and the full cost of college is similar to students at public four-year colleges.
  • Federal Stafford loans, which any student can qualify for regardless of income, are safer and more affordable than private loans. Relatively few community college students borrow student loans of any type, but those who do unnecessarily turn to private loans more frequently than students at other types of colleges.

Read the fact sheet here

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New federal data show that the percentage of all undergraduate students who borrowed private student loans jumped from 5 percent in 2003-04, to 14 percent in 2007-08. At proprietary (for-profit) colleges and universities, the percentage of students who took out these loans skyrocketed from 13 percent in the 2003-04 school year, to 42 percent last year.

Private student loans are typically more expensive than federal student loans, with higher, variable interest rates and far fewer options for borrowers in repayment. Even though financial aid experts agree that these loans should be used only as a last resort, one in four private student loan borrowers in 2007-08 didn’t take out any federal Stafford loans that year. Federal Stafford loans are available to almost all students, regardless of income.

“These data are troubling because private student loans are more like credit cards than financial aid, and have very little in common with federal student loans,” said Lauren Asher, Acting President of the Institute for College Access & Success, which runs the Project on Student Debt. “Too many students are missing out on federal loans and going straight to one of the riskiest borrowing options.”

Students at proprietary schools of all levels and private nonprofit four-year schools are disproportionately represented among private student loan borrowers in 2007-08. Only about 13 percent of all undergraduates attend nonprofit four-year schools, but they make up 22 percent of all private loan borrowers. About 9 percent of undergraduates attend proprietary schools, but they represent 27 percent of private loan borrowers.

These data reflect borrowing levels before the credit crunch, which hit the private student loan industry hard in the spring of 2008. Still, lenders aggressively market private loans directly to students, and although private loans are more likely now to require a co-signer and a higher credit score, these loans are still available, especially from large banks.

“Unfortunately, private loan borrowers remain at the mercy of their lenders if they are having trouble making payments in these tough times,” said Asher. The Project on Student Debt supports stronger consumer protections for private loans, such as clearer disclosure of terms for prospective borrowers and fair treatment of this risky debt in bankruptcy, positions outlined in their 2009 Policy Agenda.

The figures in this release were calculated by the Project on Student Debt using data from the National Postsecondary Student Aid Study, a federal survey of college students conducted every four years by the National Center for Education Statistics that was released last week. The data reflect borrowing activity by undergraduate students who are US citizens or permanent residents, during one academic year at all types of postsecondary institutions. The data should not be confused with cumulative figures for graduating seniors, which will not be released until next month. The Project on Student Debt will calculate and release more facts about student debt at that time.

Click here for quick facts about private borrowing

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