Soaring number of student loans leads to fears of market collapse

Since 2000, college loans in the state from private sources have swelled from $5 million to $32.5 million, according to a financial-aid report to be discussed by Maryland’s board of regents today.

The report, prepared by the university system’s institutional research department, calls the trend toward private loans “alarming.” It makes a sharp distinction between students borrowing money privately and acquiring federal loans that are fixed at an interest rate of 6.8 percent. The private loans can carry interest of more than twice that.

Tamara Draut, director of the Economic Opportunity Program at public policy research group Demos, said consumers should be forewarned that private loans lack the controls on pricing and costs that government loans have.

Experts are drawing parallels between the student loan and subprime mortgage markets.

“With private student loans you have widely and aggressively marketed loan products geared toward people who are desperate for any way to help them pay for school,” Draut told The Examiner.

“It’s the same way you have widely aggressive marketing of subprime loans to consumers looking to refinance their homes..there is very little regulation, which is a recipe for disaster.”

John Buettner, a regents spokesman, said the finding is not unique to the Maryland system.

“Pell Grants took a hit so students are getting less and less aid from the federal government and instead turning to private loans,” he said.

Nationally, the amount of money borrowed from private lenders has grown by almost 30 percent since 2000.

Overall, loans are becoming a more popular way for Maryland students to pay for college. The Regents report found that 60 percent of financial aid used by

graduates was in the form of loans.

dlevitz@dcexaminer.com