FAFSA Form May Drive Students To Private Loans

By CityTownInfo.com Staff

June 11, 2009

Although federal loans are far less expensive than private student loans, a new study indicates that the complex Free Application for Federal Student Aid may deter students from applying.

Forbes reports on the study, which was conducted by Mark Kantrowitz, publisher of FinAid, a Web site that tracks the student loan industry. It concluded that the number of students who only took out private loans increased by 27 percent annually over the last ten years. Additionally, 60 percent of undergraduates and nearly 90 percent of graduate students who took out private loans did not complete the FAFSA.

Kantrowitz noted that the complexity of the FAFSA may very well dissaude students from applying for federal aid. Although the form is supposed to take one hour to complete, sometimes filling it out can take two full days, said Cynthia Wallace, director of the Southern Appalachian Educational Opportunity Center, which helps low-income adults in Southeast Tennessee and North Georgia apply for college loans.

"The FAFSA can be very intimidating," she told the Chattanooga Times Free Press. Wallace noted that one question answered incorrectly on the FAFSA can eliminate thousands of dollars in aid or trigger a rejection of the application.

"When I think about all the people out there trying to do FAFSA alone, it scares me," Wallace said. "It is extremely rare that I see (an application) that I don't correct a mistake on, and I have seen those mistakes translate to real dollars for students."

Applying for private loans over federal loans can be costly. Private student loans usually have variable interest rates rather than the fixed rates carried by federal loans. The average private student loan charges a 12 percent interest rate, compared to the 6.8 percent fixed rate of Stafford loans.

Dianne Cox, director of financial aid at Dalton State College in Georgia, told the Chattanooga Times Free Press that some students don't apply for federal funding because they are certain they won't receive any aid. Others who are rejected for federal funding for their freshman year never resubmit the FAFSA while at school.

Included among Kantrowitz's recommendations for alleviating the problem were that all college students should be required to submit a FAFSA and the application should be simplified. Similarly, Cox said that the IRS should share information with the Department of Education to help eliminate some of the FAFSA questions.

"We all know that the application has gotten out of hand," she noted.

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