Helping students handle private loans

(FOX Providence) - Last week, the Project on Student Debt released a report highlighting the efforts of some college financial aid offices to help borrowers avoid taking on too much student loan debt.

With many students taking out risky private loans without fully exhausting safer federal loan options, the report offers a number of steps schools can take to make sure students are making informed and affordable choices.

Peter Kerwin from the Rhode Island Higher Education Assistance Authority, joined The Rhode Show to talk more about it.

What are the best practices in terms of helping students avoid taking on risky private loans?

The report came out last week and it was titled “Critical Choices: How Colleges Can Help Students and Families Make Better Decisions about Private Loans”. The folks at the Project on Student Debt know better than anyone that there are too many students out there who are taking on risky private loans when they could have opted for safer federal loans. If you are going to stop that from happening, the key is to make sure college financial aid offices are providing students with the counseling and information they need to make informed decisions.

The report drew on interviews with 22 financial aid administrators at schools across the country and good news is there are schools getting to students before they take out private loans, offering counseling services and helping connect them with more beneficial federal loans. There is a voluntary practice among lenders known as “school certification” in which the lenders have the schools confirm the borrower’s enrollment and the expected costs they are going to face. It’s a way to keep students from borrowing more than they are eligible for and it gives counselors a chance to talk to students before they take on risky loans.

But that’s a voluntary practice. It’s not happening everywhere?

No, it’s not and that’s one of the problems highlighted in the report. Private loans are on the rise because of the increasing cost of college and this report offers some model behaviors by schools which should be in place everywhere.

Among the recommendations were to require counseling for all private loan applicants, especially those who have not exhausted their federal loan options. Also they recommended formal policies to reduce reliance on private loans, as well as tracking and sharing information on outcomes so that they can point to the kinds of counseling programs that are resulting in students avoiding risky loans.

It wasn’t too long ago that New York Attorney General (now Governor) Andrew Cuomo, was going after the cozy relationships between schools and lenders. This report shows there are a number of schools out there doing the right thing in terms of helping students avoid the dangers of taking on risky private loans, so hopefully we will continue to see progress in that regard.