With the hopes of reducing work hours and stress, Jennie Tran
immediately accepted the private loans offered to her as a part of
her financial aid package, in addition to the federal loans she was
also receiving.
But the second-year international development studies student
later wished she had considered more options.
During her first year, Tran received both federal and private
loans to cover the cost of attendance.
“When the process was complete, and as I looked back on it
later, I felt that the high interest rates for private loans and
the elaborate credit requirements made it more difficult and
stressful for myself and my family, rather than providing … extra
help,” she said.
If the 2007 budget proposal released by President Bush last week
is passed, many students may be in Tran’s position.
The proposals called for the elimination of Perkins Loans and
the Leveraging Education Assistance Partnerships program, through
which the federal government matches every dollar that the state
entrusts to need-based aid.
Perkins Loans, which cost the federal government $1.26 billion
last year, have a fixed rate of 5 percent for students who
demonstrate need.
The school functions as the lender, providing the loans to
students using mostly government funds. The students repay the
school, which in turn repays the government. The total repayment
term for students is up to 10 years and begins nine months after
graduation.
Without these loans, more students are likely to consider
private loans. And students, parents, and school officials are
concerned because Perkins Loans offer low-interest loans for
students and their families, who would otherwise look toward
private loans that usually have higher interest rates.
Some beneficiaries of the program, such as first-year biology
student Joseph Hargan, say low-interest loans are necessary,
particularly for students from low-income families.
“Perkins Loans have been especially helpful for my family
because they came in and provided an alternative to expensive loans
that would have been difficult to pay back,” Hargan said.
“Without the government’s help in funding my college
tuition, I would have had to reconsider whether I would be able to
attend UCLA or not because of financial constraints,” he
said.
Nicolas Valdivia, executive assistant director of the UCLA
Financial Aid Office said though there are advantages and
disadvantages to both types of loans, many families prefer federal
ones because they typically have lower interest rates and no credit
requirements.
Though private loans are not always the most appealing option
for families, they are often necessary to cover the gap between met
and unmet need, said Maurice Salter, president and CEO of School
Loans Corporation, a locally-based company that helps parents and
students with the loan process.
“Private loans are skewed … they come in all shapes and
sizes, whereas federal loans are uniform,” Salter said.
He said many students and their families do not anticipate how
difficult it can be to qualify for a private loan.
“Private loans also have very high denial rates; sometimes
as much as half the people don’t qualify,” he said.
But Salter also pointed to some positive aspects of private
loans.
“The benefit of private loans is that if you have good
credit, there are lower interest rates, sometimes even lower than
federal loans. They also have a longer repayment period,” he
said.
He noted that private loans can be approved within one week, are
easier to apply for than federal loans, and the applications are
open year-round.