SAN FRANCISCO--(BUSINESS WIRE)--With the 2018-2019 school year weeks away, many college students and their parents are securing last-minute funding for the academic year ahead. Based on July data, student loan marketplace Credible.com reports that many undergraduates are relying more heavily on private student loans, with average loan balances up 14 percent in 2018 compared to 2017 and 27 percent from 2016.
Looking at private student loans taken out by undergraduates in July, Credible.com found that the average private student loan balance was $18,332 in 2018, compared with $16,078 in 2017 and $14,446 in 2016.
“As college costs continue to rise and federal loan limits remain fixed, private student loans are an increasingly important source of funding for students and their families,” said Stephen Dash, founder and CEO of Credible.com. “If you are using private student loans to fund college costs, one of the most important things families can do to keep costs down is to compare rates with multiple lenders.”
Stalled Federal Student Loan Limits Fail to Cover College Costs
While federal loan limits have been unchanged since 2008, the cost of attendance at both public and private universities has increased significantly. According to the College Board, tuition and fee increases have leveled off, but room and board expenses are up sharply.
Even after adjusting for inflation, the annual net cost of attendance for in-state students at public universities has increased by 33 percent over the last 10 years, to $14,940. Over the same period, the annual net cost of attendance at private, nonprofit universities is up 10 percent, to $26,740.
Despite these increases, Congress has not raised borrowing limits on federal student loans in a decade. As a result, freshmen dependent students can take out no more than $5,500 in federal direct loans. While the amount gradually scales up to $7,500 a year for juniors and seniors, the lifetime limit on direct loans for dependent undergraduates is $31,000. Once undergraduates have hit their limits on federal direct loans, many families must choose between parent PLUS loans or private student loans to cover unmet funding needs.
Private Student Loans Competitive with PLUS Loans
With interest rates on federal student loans increasing for the second year in a row on July 1, rates on federal PLUS loans for parents and graduate students headed to school this fall are 7.6 percent. PLUS loans also carry a hefty 4.26 percent upfront fee, which can raise the annual percentage rate (APR) by about one full percentage point. That means that effective annual percentage rates for PLUS loans can exceed 8 percent.
Depending on the borrower (and cosigner's) creditworthiness, rates on private student loans can be competitive with PLUS loans, particularly after factoring in the upfront fee on PLUS loans. As a result, more families are turning to private loans as an alternative to expensive parent PLUS loans.
“Rates on private student loans vary considerably by lender and credit profile,” explained Dash. “One of the best ways to reduce your rate and keep your overall debt as low as possible is to add a cosigner. Credible.com makes it easy for anyone to compare actual rates (not ballpark estimates) across multiple lenders in two minutes without affecting their credit.”
About Credible.com
As a marketplace that empowers consumers to discover financial products and services that are the best fit for their own, unique circumstance, Credible.com is fiercely independent and committed to delivering fair and unbiased solutions for millennials. Credible’s integrations with lenders and credit bureaus allow consumers to access actual rates through a neutral platform, without sharing their information until they’re ready to proceed with a specific lender. The Credible.com platform provides an unrivaled customer experience, as reflected by hundreds of positive Trustpilot reviews and a TrustScore of 9.5/10. For more information, news media may email press@credible.com.