In case you’ve been in a coma and haven’t heard, there is a student loan crisis. According to the Federal Reserve Bank of New York, the total student loan debt of $870 billion exceeds that of consumer credit card debt. Apparently, students are borrowing too much to pay for college. Or maybe they’re not borrowing too much, they just don’t have jobs that will allow them to make their loan payments.
How Much to Borrow
Whatever the exact situation, the fact is that individual students have the ability to decide how much money to borrow. They also have the ability to decide what kind of money to borrow. This means that they need to understand the difference between private and federal loans.
Actually, in most cases they don’t really to know much more than that they shouldn’t be taking out private loans. Given that virtually everyone qualifies for unsubsidized Federal Direct loans which have a maximum accumulated limit of $31,000, no one should be borrowing more than that. If you need to borrow more than that, you probably shouldn’t be going to the school.
Disadvantages of Private Loans
Private loans are going to have higher interest rates and may require repayment to start while still attending school. They generally don’t offer forbearance or deferment options. Nor can students take advantage of consolidation programs, extended repayment plans, or government repayment programs that cap monthly payments based on your income.
While it’s certainly possible to find yourself with financial problems taking out federal loans, taking out private loans makes it much more likely. The simple solution is to apply to schools where you won’t need to take out a private loan. And yes, at some schools students are more likely to have private loans than at others.
Private Loans Now Mean Debt Later
The Integrated Post-Secondary Education Data System (IPEDS) reports the percentage of freshman who take out non-federal loans and the average amount. Non-federal loans can include institutional loans as well as private loans. Unfortunately, it’s not possible to tell what percentage of loans are private versus institution. Furthermore, it’s possible that institutional loans offer better terms than federal loans but we just don’t know.
If you’re considering a school with a high percentage of students with non-federal loans, be sure to take a close look at the school’s financial aid policies. Don’t put yourself in a situation where the only way you can attend college is by taking out a private loan.
Colleges Where Students Have the Most Debt
The table below lists the 111 50-50 schools where 15% or more of freshman have non-federal loans along with the average loan amount. When considering the amounts, remember even a relatively low amount such as $3,000 will add $12,000 in debt over four years. And chances are that’s on top of existing federal loans.
Over three quarters of the schools on the list have an average non-federal loan amount of $10,000 or greater. This includes two public institutions. Fourteen of the schools have 25% or more of freshman receiving non-federal loans including one public school.
Pennsylvania has the most colleges on the list with 31. Massachusetts is a distant second with 18 colleges. Minnesota came in third with 11.
As usual, the five-year graduation rate is used for public institutions and the four-year rate for private schools.
50-50 Colleges Where Students Are Most Likely to Graduate with Debt (% Freshman with Non-Federal Loans)