Tuition and enrollment fees will continue to rise this year while government aid and scholarships will become more selective. Hence, there will be a decreased number of students that can take advantage of the financial aid provided through government programs. This drives students to use online lending services that are easily accessible over the Internet. The question is, will private lenders offering student loans keep up with the growing demand?
Although there are many small private lenders operating online, their total loan funds will not be enough to accommodate the growing demand for student loans. This is partly because of the lack of government help and encouragement, which forced large lenders to exit. The other reason for the lack of student loan funds can be attributed to the Federal loan limits and current legislative proposals that reduce the private lenders’ scope of business.
Lenders: Student Loans are Specialty loans
According to lenders, student loans are considered as specialty loans because they are subject to different Federal laws. This means that in order to accommodate university students seeking funds to further their education, existing online lenders would have to draft different sets of terms and guidelines in order to legalize their transaction. A lot of lenders just don’t want to go through the hassle.
Only about 2 out of 10 online lenders offer student loans. The rest offer bad credit loans, payday loans, and personal loans and so on. To accommodate all potential borrowers, online lenders cap the loan amounts that are approved per transaction. Also these general online loans need to be paid back within 30 days and that keeps the industry going. But student loans have longer terms that is why they need more loan funds to continue operating.
NUS OK with Online loans as long as Students are Informed
The National Union of Students recognizes the importance of the role played by online student loan lenders to ensure that university students are given the help that they need financially. However, they warn students against unscrupulous lenders who charge exceedingly high interest rates. They suggest that in order to get the best deals online, students should take the time to check the Federal law on student loans.
In addition, the NUS are actively lobbying for some more amendments of the Financial Services Bill in order to completely eliminate abusive online lenders. The bill is set to be signed into law within the year or early next year.
For the moment, the NUS advises university students who would need to get student loans from private lenders to be very selective.
Students: “Give us More Financial Aid”
While options are available for university students, many would still prefer to receive student loans from the US government because of the longer terms. Under the government programs, loans are to be paid back a couple of years after graduation. But that does not have to be a one-time payment, rather it will be divided into equal monthly installments. The way online lenders are setup is that the loan terms are shorter; thereby forcing students to work and study the same time.