Tag Archives: college loans

College Loan Industry

Paying for college is no easy thing today with the average tuition costing anywhere from about $9,000 for public instate universities up to $30,000 for private universities. A year that is. With the recession in 2009, many college graduates found themselves graduating without working and facing down hefty loans with no real income. Since then the economy has recovered and the private banking sector is regaining faith in students to pay off their loans. So will it be easy for just anyone to get their loan and head to college?

Probably not. Although the private sector has started showing signs of faith, it is likely that for now they will be lending to students who have good credit and a prosperous cosigner. A high school graduate with good credit and a cosigner can find a loan with interest ranging from 2-5.5% depending on some of the variables. If you don’t have good credit and a good cosigner you wont be finding yourself as lucky. People who fall into the later category typically find college loans with interest rates higher than 10%, an amount that makes any interest hard to pay off. Not only are they slammed with a high interest rate but they are usually limited to finding federal loans oppose to the loans from private banks.

As one may have guessed the students who are taking out federal loans at higher interest rates are finding themselves defaulting at a much higher rate. When the recession hit in 2009 student defaults spiked from about 4% in 2008 up to 10% in 2009. Facing major loses the private banks had to tighten down restrictions to avoid extreme losses. On the other side, Federal loans only increased from 7% in 2008 to 9% in 2009. The major difference between the private bank loans and Federal loans is in the recovery. Due to stricter underwriting the private sector has been able to avoid loses and drop its default rate all the way down to 3%. The Federal loans, however, kept restrictions broad not trying to limit college ambitions and as a result have seen increases in default rate from 9% during the recession to over 11%.

Don’t get me wrong, the news of improved loans for college students is a good indicator that our economy is on path to full recovery, it just isn’t great news for students across all socio-economic statuses. Some students are going to face some hard times when applying for these loans and then attempting to pay the off post graduation. We can only hope that with the improved economy more students are able to get high paying jobs upon graduation and can pay off these monstrous debts.