Why Do Students Choose Costlier Private Loans?
One in five undergraduates who take out private loans forgo less-expensive federal loans, according to a new analysis released today by the American Council on Education. The analysis, titled “Who Borrows Private Loans?,” offers several possible explanations for why students would shun federal loans, which typically offer lower interest rates and more-flexible repayment options. It says that students may have been attracted to the application process for private loans, which tends to be simpler than completing the eight-page Free Application for Federal Student Aid, known as a Fafsa. According to the analysis, half of the borrowers who took out private loans exclusively did not even file a Fafsa. Alternatively, students may not have been aware of the differences in cost between federal loans and private loans, the report says. Private loans are the fastest-growing form of student aid today. In 2005-6 borrowing through private-loan programs totaled $17.3-billion. Robert M. Shireman, exe
