Study: Students opting for unnecessary private loans

Students are opting for private loans when cheaper federal loans are available

Students often take loans to help pay for their college education, but a new study says that a large majority of them are taking expensive private loans without looking into federal loans.

Researchers at the Project on Student Debt prepared the study, which analyzed student loan data from the 2007-2008 school year. They found that 64 percent of the students they looked at included private loans in their financial aid packages but did not include federal loans.

The study finds several problems with these circumstances; federal loans are subsidized and private loans typically are not, meaning students with private loans will have more money to repay to lenders.

Even more troubling, private loans often have variable interest rates that are the highest for those in the worst financial circumstances, and they are virtually impossible to be removed or forgiven by declaring bankruptcy.

The study find fault with disclosure statements attached to private loans, which do too little to warn students what they are accepting. Federal regulations, it continues, are also too lax.

Students entering or returning to school should consider their options carefully to avoid overpaying upon graduation. Federal loans and grants are available on need bases; discussing financial aid with a counselor can be a good way to determine what is available.