Because of the current national economic troubles, more than 100 financial firms have ceased to offer private student loans, including Wachovia, which stopped accepting applications for private, undergraduate student loans at the beginning of August. This has prompted an increasing number of students to turn to federal loans to help pay for a rise in tuition costs during the economic crunch.
Federal loans are more advantageous to students, said Scott Miller, associate director of Student Financial Services, because they are insured and have a fixed interest rate, and students are guaranteed to receive a federal loan without a credit check.
Roland King, vice president for public affairs for the National Association of Independent Colleges and Universities, agreed, adding that cost alone should be enough to deter students from taking a private loan.
“The advantage of federal loans is that you eliminate the middle man so there is not the same need for a profit margin for the private company,” he said.
Federal loans, however, also have pitfalls. There are limits to how much each student can receive from federal loans, and the only other options to make up the difference are private or parent loans, Miller said, which parents can take out for students at a fixed rate. Caps on the Stafford loan, the most common federal loan, are $5,500 for first-year students, $6,500 for second-year students and $7,500 for third and fourth-year students, he added.
“If you’re an out-of-state student with a $40,000 budget and you can only get $5,500, you can see why you’re forced to turn to other options,” Miller said.
Nevertheless, the amount of money taken out by University students in federal loans far outnumbers private or parent loans. According to statistics from Student Financial Services, subsidized and unsubsidized undergraduate loans for the 2008-09 school year number $15.6 million in federal loans, $5.8 million in parent loans and only $1.7 million in outside, or private, loans.
This reflects the current state of the economy and the shift to federal aid, King said, given that private loans are more expensive and restrictive.
“There just isn’t the same level of affordability or availability,” he said.
Fourth-year Architecture student Anna Miron said she has had a private student loan throughout her studies and did not experience any problems with it until this year.
“For the first three years it went through on time,” she said, “but this year there was a lack of communication between the company and the school.”
Miron said she filed her paperwork earlier than normal, and the company was not able to get in touch with the University. As a result, Miron said her fees were not paid and her registration was blocked.
“I still don’t know if it’s been straightened out,” she said.
In the future, Miron said she would explore federal loans as an alternative to private ones, especially considering the lower interest rates.
“I’m going to grad school eventually,” she said. “And I will definitely reconsider [my loan provider].”
Fourth-year College student Renny Agiri said she has had federal loans since first year and has not experienced any problems.
“I signed something once first year,” Agiri said, “and it automatically renews every year. There’s not a lot of paperwork.”
Third-year College student Sara Schmidt, however, said she has experienced a problem with the federal loan system: Funds are not deposited early enough in the semester, in her opinion.
“They’re a little slow on the distribution,” she said.
Student Financial Services always encourages students to maximize their federal loans first because it is a “better deal in the long run,” Miller said. Once students reach the limit, they are given the options of using a University payment plan, a parent loan or a private loan, which Miller said is always the last option suggested.
But no matter which options students choose, they always will be covered under the AccessUVa program, Miller said.
“We’re going to cover that difference, if there’s still the need,” he said. “We’re always going to meet 100 percent of need.”
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