2008 FastWeb Student Loan Survey
FastWeb conducted a student loan survey in October and November 2008 to help identify the reasons why some borrowers prefer private student loans over federal education loans. The survey was also intended to help measure the impact of the student loan credit crunch on prospective borrowers and to generate ideas for improving the student loan programs.
Summary of Key Results
Key findings of the student loan survey include:
The survey also asked for suggestions for improvement in the federal education loan program. Some of the suggestions were focused on loan terms, such as increasing loan limits, cutting interest rates, eliminating interest capitalization and doubling the grace period before the start of repayment. Other suggestions were focused on the process, such as making the application forms simpler, easier to understand and easier to complete, and streamlining the disbursement of loan funds. They suggested having a live person (not the lender) handhold families through the process and felt that the federal education loan options should be publicized better. Students also called for having just one student loan instead of multiple. They also had suggestions for the financial aid application process, such as having the FAFSA consider consumer debt, not consider parent income and assets, use regional cost of living adjustments, and provide a way for families to explain extenuating circumstances. Some students called for expanding eligibility, such as allowing students whose parents refuse to complete the FAFSA to obtain student loans on their own, allowing students to borrow for a second bachelor's degree or allowing international students to borrow from the federal education loan programs. The students also called for increases in student aid funding, such as increasing the Pell Grant, replacing loans with grants, and providing more assistance to children of single parents. They also felt that talent should be rewarded, such as providing a full-ride for exceptionally talented students regardless of the financial situation at home and rewarding students for getting good grades in college.
Previous Data on Borrowing Patterns
According to data from the 2003-04 National Postsecondary Student Aid Study (NPSAS), 91.1% of undergraduate student private loan borrowers do not borrow from the PLUS loan program and 22.7% do not borrow from the Stafford loan program. (When restricted to undergraduate students at 4-year institutions, the figures are 89.9% and 19.7%, respectively. When restricted to undergraduate students at 2-year institutions, the figures are 95.1% and 31.8%.) 24.3% of graduate student private loan borrowers do not borrower from the Stafford loan program. These results are somewhat surprising, given that the federal education loans are cheaper, more available and have better repayment terms.
It is not entirely clear the extent to which these statistics are the result of eligibility restrictions as opposed to personal preferences. For example, a student might be ineligible for federal student loans because of a failure to achieve satisfactory academic progress (a minimum of a 2.0 GPA). Or the student's college may have opted out of the federal student loan programs to preserve eligibility for the Pell Grant program, since schools with high cohort default rates lose eligibility for both federal loans and grants. International students are also ineligible for federal student aid. The student may have borrowed the maximum available Stafford loan or his or her parents may have been denied a PLUS loan because of an adverse credit history.
Some of these questions can be answered by further analysis of 2003-04 NPSAS data. The following table shows the percentage of undergraduate private student loan borrowers who do not borrow from the Stafford or PLUS loan programs who have a given characteristic. These categories may overlap and do not total to 100%.
This table presents at best an incomplete picture of the reasons why some families borrow private student loans instead of federal education loans. The FastWeb Student Loan Survey was conducted in order to provide more insight into this phenomenon.
The FastWeb Student Loan Survey
The FastWeb Student Loan Survey was conducted from October 23, 2008 through November 13, 2008. The survey was mentioned in four regular FastWeb newsletters sent to 6,079,974 college students and 1,007,853 parents of college students. The survey was implemented using SurveyMoneky and was incentivized by a chance to win a free copy of FastWeb College Gold: The Step-by-Step Guide to Paying for College.
There were a total of 1,202 responses by the cutoff date, yielding a confidence interval of +/- 2.83% at the 95% confidence level for the US college student population as a whole.
20.9% of respondents attend a 1- or 2-year undergraduate program, 68.9% a 4-year undergraduate program, and 10.2% a graduate or professional degree program.
65.2% of respondents indicated that they were a dependent student, 21.9% an independent student, and 12.9% were unsure. (Dependency status was defined on the survey in terms of whether parental information was included on the FAFSA.)
The distribution of the marital status of dependent students' parents was as follows: 72.3% married, 13.7% divorced, 3.4% separated, 7.2% never married, 1.4% widowed, and 2.0% prefered to not respond. (None indicated that their parents were in a civil union.)
48.1% indicated that their parents were helping with college costs. 31.8% said that their parents were not helping with college costs, and 20.2% said "maybe / depends". Among dependent students the percentages were 65.5%, 12.6% and 21.9%, respectively. Among independent students the percentages were 6.3%, 86.8% and 6.9%, respectively.
Loan Application Statistics
The following table shows the percentage of students applying for each type of loan and of those applying, the percentage who were denied.
Of Stafford loan borrowers, 44.9% indicated that they had borrowed the maximum amount available. 34.2% indicated that they had not borrowed the maximum amount available, and 20.8% were not sure whether they had borrowed the maximum amount available or not.
36.0% of respondents indicated that they had used other forms of debt to pay for school. 16.7% of respondents said they had borrowed from friends and family, 13.9% using credit cards, and 10.2% using a personal loan from a bank. 3.1% used a fixed rate home equity loan, 1.2% used a variable rate home equity loan, and 3.1% used a variable rate home equity line of credit (HELOC). 1.2% said they had used a peer-to-peer loan. (Totals sum to more than 36.0% because some respondents may have used more than one other form of debt.)
Reasons for Borrowing Private Student Loans
Of those borrowing private loans, 16.8% indicated that this was because they were ineligible for federal education loans. 10.6% said that the student was ineligible because he or she was not a US citizen, 10.4% because the parents were not US citizens, and 2.0% because the student was not making satisfactory academic progress. (15.6% were ineligible because either or both the student and parent were not US citizens.) The unstructured responses included additional reasons, such as the parents being denied a PLUS loan because of an adverse credit history and and parents or student earning too much money.
Of those borrowing private loans whose parents were eligible to borrow from the Parent PLUS loan program, 50.4% said that their parents were willing to borrow for their education and 49.6% said that their parents were not. The most common reasons for parents being unwilling to borrow for their children's education included:
Of those borrowing private loans, 73.3% said that their parents were willing to complete the FAFSA and 26.7% were not. The primary reasons some parents were unwilling to complete the FAFSA included the following:
In addition, the survey included two "comprehensive" questions concerning the reasons why families borrowed private loans instead of federal loans. Both questions had the same responses, but the first allowed them to check all the reasons that applied, while the second required them to choose only a single primary reason.
The responses to the first question were as follows:
The responses to the second question were as follows:
Suggestions for Improvements in Federal Education Loans
The survey also asked respondents "What changes would you make in the federal loan programs?". Some of the more interesting responses included the following:
Financial Aid Application Rates
46.1% of respondents said that they had filed the Free Application for Federal Student Aid (FAFSA) for the 2008-09 academic year. 48.1% did not, and 5.9% were not sure.
Of those that did not file the FAFSA, the following were the primary reasons:
Since FastWeb is a free scholarship matching service, there is the potential for selection bias (i.e., students who are looking for scholarships). Another potential source of bias is the requirement that the students have opted in to receive newsletters. Also, the students and parents self-selected based on their interest in completing a "student loan survey". But the newsletters were sent to more than 6 million college students, representing about a third of all college students in the US.
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