Why Expansion of the Private Loan Market Is Bad News

Private Loan Market Is Bad News

It’s a rite of passage for many college students: Standing in line in the financial aid office, then meeting with an advisor who navigates the federal and state student loan offerings and sets you up for the financing you need to get through college. It’s an investment in your future, and since the office is a popular place on campus, it can seem that the financial aid office and federal or state loans are the only ways to finance a college education.

Many financial aid offices do not advertise Find The Best Student Loan, as they typically lean in favor of the government programs, but it’s a thriving industry that – according to the Wall Street Journal is quickly growing after experiencing a rough patch recently.

Whether someone chooses to go with federal or private comes with a little ‘give and take.’ Some of the protections that government loans offer aren’t available with private loans, but private loans can still be attractive because there are fewer restrictions that come with them.

How are Private Loans Becoming More Popular?

The explosion in Best Private Student Loan Options are given out is quite significant, according to the Wall Street Journal. They say that a report from MeasureOne showed where $7.04 billion was doled out for the 2013-14 academic year, and that number is a 6 percent increase from the year before. Furthermore, an astonishing 25 percent increase was seen from 2010-11. That big jump appears to be related to the amount of credit out there that is available to students.

According to WSJ, the leap can be attributed to the industry checking itself after there was simply too much risk associated with Graduate and Professional Student Loans. Lenders were dealing with a lot of defaults on the part of students and therefore found more profitable ways to use their money. But guarantors have tightened their requirements, and that has lessened the risk of offering the loans to the public. An example is the mandatory co-signer.

This is because of loans, where two people are held accountable, are less likely to fall into default. The story cited a figure that 94 percent of private loan money given out is given to a loan that has multiple signers. That figure is up quite ways from 77 percent in 2008-09.

Losses are remaining low for lenders a nice change from the last decade – so businesses are flocking to the student loan realm now. According to the Wall Street Journal, lenders had to write off 2.4 percent of their balances recently in comparison to a much larger 9.4 percent in the third quarter of 2009.

While there is indeed a rise in the number of people choosing to go with private loans, it is still a tiny fraction of a number of Graduate Student Loans. The Wall Street Journal says private loans still only make up 7.5 percent of all student loans handed out, compared with 92.5 percent for federal programs.

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