Private Student Loans Could Graduate into Major New Debt Market

As more students go to college, the amount of student loan debt continues to climb. Total enrollment increased by as much as 15 to 20 percent between 2002 and 2004, according to the National Center for Education Statistics, setting the stage for significant growth within the student loan collection market.

Several factors will play prominent roles in the upward trend in student loan defaults, but the major contributor will be the ever increasing cost of education. The combined costs of tuition, fees, and room and board have increased 31 percent in the last decade at private four-year colleges and 42 percent at public four-year institutions, according to the National Association of Student Financial Aid Administrators.

These rising costs, combined with the economic fallout from the credit crunch and the mortgage crisis, is sending education loan defaults higher ("Student Loan Defaults Rising," Dec. 14). United Student Aid Funds Inc., the largest loan guaranty agency, reported a 22 percent increase in default claims in its fiscal 2007 year ending in September.

Much has been made of recent initiatives by a select few colleges and universities to provide more financial assistance to lessen costs for their students. But such initiatives are unlikely to become commonplace because schools are limited by their resources, thereby limiting these financial aid programs to institutions whose endowments are large enough to support them (e.g., Harvard, Princeton, Stanford and other well-heeled schools).  

As education costs have soared many would-be college students have turned to private student loans to bridge the funding gap between their federally funded loans and their college expenses.

Though private student loans constitute the smallest segment of the student loan market, it is widely recognized as the fastest growing. From 1995 to 2005 private loans grew from 5 percent to 19 percent of the market, and generated $19 billion in lending in 2005, according to the Institute for Higher Education Policy.