College students, families miss out on funding options, studies find

RESEARCH TRIANGLE PARK, NC — Amid the rising tide of people borrowing money to pay for college, many borrowers fail to use federal loans to their best advantage, according to new research from RTI International.

In two recent reports, RTI researchers examined two groups of undergraduate students: those who borrowed the maximum amount of federal student loans, and those who did not apply for financial aid. Both reports were based on the National Postsecondary Student Aid Study and were released recently by the National Center for Education Statistics.

Among the first report’s key findings is that students and parents sometimes turn to private loans or other sources of college funding before borrowing the maximum from the federal direct loan program, the researchers found. This can be problematic because private loans generally carry higher fees and interest rates, making them more difficult for borrowers to repay.

“The complexity of the federal financial aid system may be prompting students and parents to seek out options that may not be optimal for their long-term financial health,” said Jennie Woo, a senior research associate at RTI.

The researchers noted that student loan debt is an increasingly significant economic trend. Total student loan debt in the United States surpassed $1 trillion in the years following the economic crisis of 2008 and 2009.

The second report outlines the reasons students decide not to apply for aid. RTI researchers found that in the 2011–12 school year, 20 percent of undergraduates fell into this category.

The top two reasons students gave for not applying for aid were being able to afford college without it, and thinking they were ineligible. Between 43 and 46 percent of students at all types of institutions who did not apply thought they were ineligible for aid. In fact, all students qualify for at least one type of unsubsidized federal loan.

Other reasons for not applying included not wanting to take on debt, lacking information on how to apply, and finding the application forms to be too much work. Community college students were most likely to report not having information about how to apply.

“As more people borrow money and the average amount of debt taken on by students and their families increases, it is critical that students are informed about the federal funding programs,” said Nicole Ifill, research education analyst at RTI and the report’s author. “As average tuition continues to rise, it is important for research to reveal how much—or little— students know about navigating the federal financial aid system and choosing their best options.”

Highlights

  • Many borrowers fail to use federal loans to their best advantage, according to new research from RTI International
  • Students and parents sometimes turn to private loans or other sources of college funding before borrowing the maximum from the federal direct loan program
  • The top two reasons students gave for not applying for aid were being able to afford college without it, and thinking they were ineligible