Another Hint of Student Loan Troubles?

I think same as this comment "However, there are also Direct to Consumer student loans such as "Loan to Learn" and others, that do not require school certification. The financial aid offices aren't involved. These loans are dangerous, but are quickly falling out of popularity because the default rate is so high."

Rate is very high and finally student cannot pay it.

James of UT 3:21PM March 18, 2009

With private student loans, the most important check and balance is that the SCHOOL must certify the loan amount. So, a student may request a $10,000 loan for one semester, but the school may certify (approve) only $5,000 of that amount.

To a large degree, the schools determine how much a student is allowed to borrow.

However, there are also Direct to Consumer student loans such as "Loan to Learn" and others, that do not require school certification. The financial aid offices aren't involved. These loans are dangerous, but are quickly falling out of popularity because the default rate is so high.

Jim dot Edu of CO 6:38PM July 04, 2008

I don't like all the lender automation either, because it keeps students who are qualified for the loans and who will pay them back from getting funds they need probably almost as much as it gives loans to people who shouldn't have them. Part of this blame has to go to the government, though, which, under the Fair Credit Reporting Act, ties lenders' hands with regard to making decisions on an individual basis. Lenders can be sued for making loans to one person and denying another with similar financial qualifications, so the first-year community college student studying philosophy with the 700 credit score gets the same consideration as a medical, dental, or law student with a 700 credit score--but which one do you think will have the greater income and the lower likelihood of default?

Also, the government has yet to regulate lenders who offer private student loans to make them have the loans certified by the school the student is attending. Had there been such regulations, the women who scammed $750,000 in fraudulent student loans likely would not have ever seen the money. In addition, if schools had to certify these loans, then students would be directed into less-costly federal programs first.

But even in the schools, there is pressure to certify loans for students who really shouldn't get them. Financial Aid Officers can't deny a student a loan for which the student qualifies unless they can document some indication that the student is planning to default on the loan. In addition, some schools put pressure on the Financial Aid Office to increase student financial aid budgets to accommodate students accustomed to higher-income lifestyles. An increase in the budget = an increase in student aid, including loan, eligibility. No one wants to tell students they need to live modestly when their parents have given them a higher-than-average standard of living. For these students, living in a dorm or a modest apartment is like Paris Hilton going to live on a farm--it's culture shock, and schools would rather up the student aid budget than risking losing students to other schools that will allow students to borrow enough to live at a standard it took their parents decades to achieve.

No one wants to be disciplined, and the government and some aid administrators (afraid of losing their jobs) don't have the guts to limit student borrowing to the minimum a student needs to get by. Does anyone really think that those spring break parties in the southern US or island resort countries are all paid for by student earnings or parents, without any help from student loans? And the frat parties, dates, beer parties, premium cable, etc.? And the kids want to stay in school 5,6,7,8 years or more before growing up and contributing to society!

IMHO, itwill take a crisis the size of the gasoline fiasco before anyone does anything about doing a real analysis of what students need to borrow, and to curb student borrowing for non-essentials.

aid officer of KY 1:54PM July 03, 2008