Remember that analysis that Project on Student Debt completed recently that showed almost 2/3 of private loan borrowers had not maximized their federal loans? Well that statistic came alive to me in the form of a call from Tom. Tom (not his real name) attends a community college in the western United States and had found me through an internet search. He thought I could help him get a private loan. I asked him to describe his current situation so that I could learn more about him. He mentioned he had received a Pell Grant and a Cal Grant but needed additional funding to cover his educational and living expenses (his school has COA of $16,000+ for students living on their own) and his Pell and Cal Grants got him about $5,000 of the way there in total.
To which the logical next question was to ask "Why not take out a Stafford loan?" Here is where it got interesting. His initial answer was a curt one "because of the red tape." Later he laid out for me the steps required by his institution to get a federal loan, which he thought would take three months from application to disbursement:
- Attend a two hour workshop
- Complete a form requesting the federal loan
- Complete on-line entrance counseling
- School contacts borrower sometime "at their leisure" after they receive verification that the student has completed entrance counseling
- School sends paperwork to the lender
- Lender responds back to school
- School says OK to get loan
- Student comes back for another workshop and has another form to complete
- Student goes back online to complete and finalize the MPN
- School contacts borrower ("don't call us we'll call you") to let him/her know that funds have been disbursed
Now, I realize that he may be exaggerating some of this for effect but when I consistently pushed back on him that a private loan was not the right answer (high and variable rates, less payment flexibility) he kept saying that he couldn't wait three months, which is what financial aid was telling him. He said he started the processing in mid-August and that by October 1st he realized that he was no closer to a solution.
His parting question to me was "Why are they being so difficult?" I wish I had an answer.