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Dismissal of private loan debts may not affect Chapman

In the 2016-2017 school year, less than five percent of Chapman students took out a private loan. Graphic by Emma Stessman

For students around the country, the dismissal of private loans is becoming a reality, and dozens of loans have already been wiped away in court – but it may not affect the private loans of students or Chapman alumni.

People who have defaulted on, or failed to repay, private student loans are having their debt wiped away in court due to lenders’ missing paperwork, leading to courts dismissing the cases brought against the borrowers, The New York Times reported in July.

Dozens of people who have taken their creditors to court have already had their loans dismissed due to improper documentation; many documents were improperly filed, flawed or missing entirely. Once the courts dismiss the case, the debt is essentially null.

Stan Moskowitz is a ‘94 Chapman alumnus who struggled to pay off his private student loan debt. He defaulted, and, after eight years, was able to pay it off in a single cash settlement, though it was still a huge hit financially, he said.

“If I would have had my debt wiped away, it would be a $38,000 difference for me,” Moskowitz said.

It’s hard to tell what effect this might have at Chapman, because universities receive little to no information about private student loans – most of the process is handled by the lenders themselves, said David Carnevale, the director of undergraduate financial aid at Chapman.

“In most cases, the school only certifies the student’s enrollment and overall cost of attendance. The lender does the rest and hands the loan application off to a servicer for payments, collections and so on,” Carnevale said.

The recent loan dismissals also may not affect Chapman students because the university doesn’t have many students who take out private loans. Carnevale said that each year, about 450 Chapman students borrow about $7.8 million from private lenders, compared to the $86.7 million borrowed through federal loan programs. A study by the Institute for College Access and Success in 2016 shows that students in the U.S. borrow about $7.8 billion in private loans annually, four in 10 of those students coming from schools with tuition above $10,000.

Carnevale believes that the reason for this is that Chapman offers its students a robust financial aid package, offering an average of $22,798 in grants and scholarships according to College Factual, and encourages its students to pursue federal loans before resorting to the private loan market.

This compares well with universities like the University of Southern California, which offers an average package of $33,269, according to College Factual. Private loans are largely unregulated, and can have many terms and conditions that can change at any time, along with inconsistent interest rates, Carnevale said.

According to a study by LendEDU, a private student loan market, 94 percent of private student loans are variable rate loans, which means that the interest rate can change over the life of the loan. LendEDU also found that the average variable rate is almost 8 percent, and that economists expect it to rise by up to 1.85 percent over the next nine and a half years – the average time it takes someone to pay off a loan.

“(Private loans) really are loans of last resort, and students may not have much of a choice in whether or not they’re going to take those out if it means going to Chapman or another university,” Carnevale said.

Moskowitz was someone who was not able to benefit from Chapman’s financial aid. He was offered a scholarship that would have come with an expansion to the school’s radio department. However, the expansion and the money fell through, and he was forced to turn to student loans. Much like Carnevale said, Moskowitz was in a situation where private loans were his last resort.

“I didn’t know what I was doing,” Moskowitz said, “I was a foolish young college student.”

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