C. Todd Jones, an Ohio official who helped develop the website called The Marketplace, said students can find it daunting to shop for bank or credit union loans needed to fill the gap between government grants or scholarships and the cost of attending college.
"The big difference in this is that it will now allow a transparent marketplace where students can find out how much they are going to be charged for their loan before they make a loan application, and they won't have their credit rating dinged five times," said Jones, president of the Association of Independent Colleges & Universities of Ohio.
Jones said The Marketplace service saves lenders overhead costs so they're able to eliminate fees and markups that can surprise student borrowers.
The online loan comparison and shopping service is operating in Ohio, California, Maryland, Oregon, Pennsylvania, New York, Indiana, Michigan, Kentucky, Mississippi, Tennessee and Alabama.
Jones said he and his counterparts in California and Maryland conceived the web tool about two years ago and hired Overture Technologies of Bethesda, Md., to build it.
It was at about that time that the surging private college loan market stalled, said Justin Draeger, president of the National Association of Student Financial Aid Administrators.
According to the College Board, a membership organization of colleges and universities, private loan volume hit $24 billion in constant dollars during the 2007-08 school year - making up about a quarter of all college borrowing - then declined by 50 percent the next year.
"In the last two years we've seen a precipitous drop in private borrowing to where it's around 13 percent," Draeger said. "That drop wasn't because of a decrease in demand. It was because, like the rest of the financial market, the private student loan market was seizing up."
For private colleges, whose students do the most borrowing, that's particularly troubling.
The latest data compiled by the College Board show 72 percent of students at not-for-profit, four-year colleges take on debt - and more of it - when finishing a bachelor's degree program. That's compared to 62 percent of students at public, four-year universities. In 2007-08, half as many public university graduates compared to graduates of private, nonprofit institutions had accrued debt of $30,500 or more, the board found.
Before the web portal was available, students were left to navigate dozens of financial institution websites to compare loan terms, said Dawn Knepper, director of financial aid at the University of Rio Grande and Rio Grande Community College. She's referred between 100 and 150 students to the website this year, she said.
Sarah Matthew, a student at Duquesne University in Pittsburgh, said the private loan she secured through The Marketplace made it possible for her to attend an accelerated second-degree nursing program at the private Catholic school.
"It was very difficult to get a loan," said Matthew, of West Virginia. "I'm 27 years old, I've never had a student loan before so I really don't have much of a credit history to go on. You really don't think about that all through college, how your credit rate looks."
In Ohio, the site aims to help students at its 51 private, nonprofit institutions, including institutions such as Wittenberg, Case Western Reserve and Xavier universities and Oberlin, Kenyon and Hiram colleges.
Concern over accessibility to loans in Ohio was compounded by the fact that the state's signature need-based aid program, the Ohio College Opportunity Grant, was drastically cut during the last budget cycle, Jones said. Some grant money is still available to students at not-for-profit private schools, Jones said, but not as much. By the association's estimate, need-based state aid to full-time undergraduates at independent colleges fell from $4,992 in 2008-09 to $2,256 in 2009-10.
Officials emphasize that students should secure all the government-backed grants and scholarships they can before ever turning to a private loan.
"Your private nonfederal loans are the loans of last resort," said Cindy Bailey, a senior policy analyst at the College Board. "What keeps us up at night is that they get lured into the private market before they find out about the federal market."
The Marketplace web site walks students through government programs first, Jones said.