PHEAA offers low-cost, no-fee private student loans

The Pennsylvania Higher Education Assistance Agency is reinventing itself as a private lender to fill in the gaps for students who have maxed out on grants and federal loans this year, but still can’t cover the cost of college or approved trade schools.

Officials at PHEAA, the embattled agency that administers the state’s student grant program and services billions of dollars in federal and private student debt, say they can cut students and families a better deal than any of the scores of private lenders that charge fixed rates ranging from about 4.7% to 14%.

Armed with $100 million from the Pennsylvania Department of Community and Economic Development, PHEAA officials say the new PA Forward loans can guarantee fixed interest rates ranging from 4.7% to 7.15% and save borrowers thousands of dollars over the life of a 10-15 year loan.

Unlike private lenders, PHEAA does not have to pay dividends to share holders.

“We don’t have a profit motive. Our shareholders are the students and the families,” PHEAA spokesman Keith New said.

Any profits ultimately will be cycled back to underwrite the PHEAA grant program.

The private loans, dubbed PA Forward, offer no-fee student loans to undergraduates, parents and graduate students who find themselves short of cash for college costs. The loans can be used to refinance college loans or even pay tuition that is within 180 days of past due. Officials said they can also be used to pay for approved certificate programs at trade and career schools.

Students from Pennsylvania and those from New Jersey, Delaware, Virginia, Ohio, Maryland and New York who attend Pennsylvania schools, are eligible to apply to PA Forward.

New said PHEAA launched the program at the request of colleges across the spectrum that had seen similar arrangements spring up in 20 other states.

Borrowers can apply for anywhere from $1,500 to the full cost of attendance.

With the cost of attendance — tuition, room and board, books and fees — at public universities in excess of $20,000 a year and private schools at $40,000 or more, many families have trouble making ends meet even after exhausting state, federal and institutional grants and federally-subsidized loans which are capped at $5,500 for a student’s freshman year and no more than $31,000 for four years.

Keeping the cost of debt down is especially critical in Pennsylvania, where the Institute for College Access and Success said 67% of college graduates left with an average debt of $36,845 last year.

“Unfortunately, private loans are important because costs are high and going up and the amount of aid students get from filling out the FAFSA and getting grants and federal loans sometimes doesn’t get a student the whole way there, even though our institutional aid is very generous,” said Mary Gazal, director of financial aid at Saint Vincent College in Unity.

“There are a lot of options out there for alternative (private) loans. And we don’t tell students which loan to choose, but we are really excited about PA Forward. If students do their homework, they’ll see that this one has better benefits than some,” Gazal said.

She said PA Forward rates are attractive compared to some private loans that cap out at 12% to 14% interest. The lack of origination fees on PA Forward is another attraction, especially on parent loans. Gazal said those loans typically carry a 4.02% origination fee. That means a parent borrowing $10,000 for tuition would only receive $9,600 and still have to pay interest on $10,000.

Ragan Griffin, director of financial aid at Indiana University of Pennsylvania, said students at the state-owned university took out about 2,300 private loans over the last year.

“Private loans are the only resource available to many families when they don’t have the money sitting around that they can write a check to fill the gap or commit to a big monthly payment. They are much more appealing than taking money out of a retirement plan, which we always try to discourage folks from doing,” Griffin said.

“In the private loan sector I think PHEAA’s loan is going to be increasingly appealing to families because they can offer these loans to lower interest rate,” she said.

Officials with PHEAA said they’ve received about 2,000 applications for PA Forward loans thus far and expect to process more once word of the availability of such loans gets out.