Uncertain Economic Times Intensify Need for Private Student Loans

Recent Legislation Creates Additional Confusion About Availability of Private Student Loans

Apr 06, 2010, 14:47 ET from SimpleTuition, Inc.

BOSTON, April 6 /PRNewswire/ -- Amidst a still-struggling economy and confusion in the market over recent student loan legislation, SimpleTuition, Inc. explains that college financing options, including private student loans, remain readily available. The student loan provision in the recently passed Health Reform Act took private banks out of the federal student loan business, but not out of the education loan business.

With the country still recovering from a massive financial meltdown and credit crisis, families have seen their savings and home equity dwindle -- traditionally the two biggest sources of contribution toward education expenses. At the same time, school endowments and scholarships are down, while tuition continues to rise, creating a growing gap between federal student loan limits and the money required to fund an education. While the federal PLUS loan helps to enable parent borrowing for part of this gap, for many student borrowers, private student loans remain an option and continue to play a critical role when paying for college.

"For many parents, careful use of private loans is a sound way to manage the gap in financing unmet need at many private colleges and universities and even flagship state universities," said Nancy Hoover, Director of Financial Aid at Denison University in Ohio.

As an example, a typical student with a $32,000 annual college bill may receive about $10,000 in scholarships and other reductions, leaving a balance of $22,000. On average, federal student loans cover $7,000, leaving students with a balance of $15,000.  If possible, families then contribute money from their savings or from parent borrowing, leaving a typical gap of $8,000 a year that students fill with private education loans in their own name.

"Since its inception, SimpleTuition has been a resource to millions of students and parents as they manage the confusing student loan process," said Kevin Walker, Co-founder and CEO of SimpleTuition. "This legislation simplifies the process for getting federal student loans, but did not increase the amount that students can borrow.  And, it may have left borrowers with the impression that 'private' student loans are no longer available.  In fact, it is federal loans from private lenders that won't be available. Gap-filling private student loans continue to be issued by banks and other lending institutions."  

"With the economy improving, we are seeing an increase in lenders' interest in promoting the private student loan category," Walker continued.  "We expect to see several new lenders included in the private student loan choices at SimpleTuition over the next several weeks."

The dissolution of the Federal Family Education Loan Program (FFELP) is primarily a change in the way federal loans are delivered.  Previously, the federal government allowed private banks to provide federal student loans on its behalf. Over the last few years, legislation reduced the amount of money banks generated from the federal student loan program, leading many banks to leave the market. All students will now apply for federal student loans directly from their school, for a loan that will now be provided by the Department of Education.

About SimpleTuition, Inc.

SimpleTuition is committed to helping students and parents figure out how to make college affordable. SimpleTuition.com features interactive tools for a personalized approach to understanding the college funding system and available education financing options. Named Best Financial Services Site by Kiplinger's, SimpleTuition is headquartered in Boston, Mass., and is funded by Atlas Venture, Flybridge Capital Partners, and North Hill Ventures. For more information, visit SimpleTuition.com.


Jan Jahosky




SOURCE SimpleTuition, Inc.