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outpace federal loan limits; Private banks step in
--Wyatt Buchanan, Lewiston Morning Tribune
As tuition rises at universities across the country, federal student loans
are not keeping pace.
Thus a gap between the cost of going to college and what students can borrow
has created a $4.5 billion market for private loans.
"Many students without a high need -- typically juniors whose (federal)
loans max out at $5,500 per year -- are turning to private loans offered by
lenders and banks," says Chio Flores, associate director of student
financial aid and scholarship services at Washington State University.
Undergraduate students are limited in their federal loans: Freshman can
borrow $2,625 per year, sophomores can take $3,500 and juniors and seniors
are eligible for $5,500 per year.
While tuition and fees at public, four-year institutions nationwide average
$3,754, overall cost of attendance averages $11,976, according to the
College Board's publication, Trends in College Pricing.
Ten years ago, the overall cost of attendance averaged $5,074.
Nearly every major bank now offers loans targeted to students. These loans
are based on the school's cost of attendance, but aren't capped like the
federal loans. Interest is deferred and rates are lower than traditional
loans at 5.1 percent at some banks, prime plus 2 or 4 percent for others.
The interest rate for federal loans is set at 8.2 percent.
A few years ago, students took out these loans for supplemental costs like
transportation or computers, says Joe Beaty, a student loan representative
with Bank of America.
"Now it's for things like tuition," Beaty says. "Before, if students didn't
get (enough in a federal) loan they would live with mom and go to school.
Now, if you don't get (enough), you don't go to school."
He sees loans at his bank range from $5,000 to $20,000 each year.
The application process for these loans is tailored to students' habits.
Inquiring about student loans at area banks on the Palouse results in a
referral to a Web site for application and approval.
"We don't do student loans in branch offices," says Katrina LeBeau at Wells
Fargo Bank in Moscow. "This year it seems we have had a lot more students
come in asking where they can get money."
The approval process can be done nearly instantly, with one caveat: the
government bases loans on need and banks base loans on credit, says Bank of
"I had a woman call in tears because her father couldn't cosign and she
didn't qualify for a federal loan," he says.
Parents' poor credit has forced students to seek co-signers from extended
family members, like grandparents or aunts and uncles, he says.
Nevertheless, private student loans increased 15 percent last year and have
taken some of the ground previously held by federal loans.
Buchanan may be contacted at firstname.lastname@example.org