Safeguards Needed for Private Student Loans
"We need to make sure that students are fully informed about the terms and conditions of these loans before they take them out. Colleges and lenders alike have a sacred responsibility to make sure they have obtained the informed consent of borrowers – because for students, not knowing what they are getting into can cause them a lifetime of problems."
Stephen Burd
The New America Foundation
Higher Ed Watch
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As much as we’d like not to have to admit it, we have entered a new era -- in which private student loans are becoming an essential financing tool for undergraduate students.
This might not be so worrisome if these loans were going only to upper middle class and affluent students. But that’s not the case. According to a report last year by the Institute for Higher Education Policy nearly 30 percent of dependent students who borrow private loans come from families making under $40,000 a year and about 1 in 10 come from families earning less than $20,000 annually. This should be of major concern to educators and public policy makers alike.
Given this trend, we believe that there are two essential safeguards that should be in place to protect these borrowers. First, before offering private loans to student-loan borrowers, colleges and lenders must ensure that students have first had to exhaust their federal student loan eligibility. Federal loans are a much better deal for students than private loans, and offer important protections than private loan providers aren’t able to provide. We can’t think of a single case in which a student is better off receiving a private loan than a federal loan.
Second, and even more importantly, we need to make sure that students are fully informed about the terms and conditions of these loans before they take them out. Colleges and lenders alike have a sacred responsibility to make sure they have obtained the informed consent of borrowers -- because for students, not knowing what they are getting into can cause them a lifetime of problems.
Unfortunately, we are not meeting these two conditions today. A substantial proportion of financially-needy students are taking out private loans before exhausting their federal student loan eligibility. According to the Institute for Higher Education Policy, 20 percent of dependent students with private loans had not taken out federal loans at all, and an additional 19 percent had federal loans but had not borrowed up to the federal limits.
And many students and their parents are reporting that they didn’t understand what they were getting themselves into when they took out the loans. They didn’t realize, for example, that the interest rate on their loans wasn’t capped, or that their monthly payments would continuously grow, or that the Sallie Mae loan they took out wasn’t a federal one.
When they hear those stories, loan industry officials often say that students and their families just have to take more responsibility for their actions. "Grow up," they say. "You’re adults now and you need to do your homework before taking out loans."
Now there may be some truth to those statements, but only if students and their families are being fully informed about all of their options. Otherwise the lenders are trying to have it both ways -- misleading students into taking high cost loans, and then blaming them for making bad and potentially life-altering choices.
FRIGHTENING TRENDS
There are two alarming trends that have contributed to the confusion borrowers are facing.
The first trend has been the enormous growth in direct-to-consumer marketing of private loans. Borrowers are being inundated with pop-up ads on the Internet offering them with easy to obtain loans of $30,000, $40,000, and even $50,000 a year. Imagine leaving college with $200,000 in loans. Kiss any chance of going to graduate school, or entering a public-service profession goodbye.
Even we were surprised when watching ESPN recently to see a broadcast advertisement for Astrive Student Loans, a private-loan product from Citizens Financial Group. "Get $30,000 for college a year," the ad said, "and you won’t even have to make your first payment until 6 months after you graduate." Sounded pretty good, having all that time to wait before having to start paying the loan back -- except that it's the same grace period that federal student loans offer and those loans are a lot cheaper. As far as we remember, the ad didn't mention that unlike the case with federally-subsidized loans -- interest on Astrive loans would accrue while you're in college.
So far that’s the only television ad we've seen for a private loan product -- but we suspect it’s not the only one out there, and that it’s just the beginning of a trend. A frightening trend.
It might not be so bad if some direct-to-consumer private student loan providers were not actively discouraging students from taking out federal loans. Companies like Educap's Loan to Learn will deny until they are blue in the face that they are doing this, but when you read statements in their marketing materials that stress just how complex it is to obtain a federal loan, you have to wonder whether they really believe what they are saying.
PACKAGING PRIVATE LOANS
As much as we’d like to, we can’t put all the blame, however, on direct to consumer marketers. There is another equally worrisome – potentially even more worrisome -- trend occurring in which colleges are putting students in harm’s way -- and that is the inclusion of private student loans in student aid packages. According to a survey unveiled at NASFAA's conference, more than 100 colleges -- or nearly 8 percent of institutions that participated in the survey -- are including private loans in the financial aid packages they offer students. This practice gives students the misleading impression that they are obligated to take out these loans. It also gives them the impression that these loans have the colleges' imprimatur -- and therefore must have pretty reasonable terms, which they often do not.
Worse, some lenders are encouraging colleges to brand the loans with their institutions’ names -- which only adds to the confusion. Last year, The Chronicle of Higher Education profiled a student who -- as part of his financial aid package -- took out an "American University Educational Loan." The student’s mother, who helped sign off on the loan, had assumed that the loans were being made by the college, and therefore, had terms at least as generous as those the government offers.
What she hadn’t realized was that they were private loans – offered through First Marblehead’s GATE program -- and that the interest rate on these loans would not only be uncapped, but would rise month to month depending on shifts in the prime rate. When her son first took out the loan, it had an attractive interest rate of 5.9 percent. But by the time, he began to repay it, that rate had shot up to 9 percent.
This mother was embittered. She said that colleges should go out of their way to make sure that students and their parents "truly make informed decisions" about taking out private loans.
It seems to us that we would all be better off -- students, parents, and colleges, which rely on the goodwill of their alumni -- if we followed her advice.
Editor's Note: This blog post is based on comments delivered by Stephen Burd at this week's annual conference of the National Associations of Student Financial Aid Administrators (NASFAA).
Editor's Clarification: Over the course of an undergraduate career, a dependent student may borrow up to $23,000 cumulatively in federal Stafford loans. PLUS loans for the parent of an undergraduate student are also available, although limited in amount equal to the relevant student's cost of attendance less other financial aid. For graduate students, cumulative federal loan limits are substantially higher.
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Untrue Claims by New America
It’s good to see Mr. Burd and the writers at New America recognize that private student loans are an essential financing tool for students. That is clearly true and is something that EduCap has worked to provide for more than 350,000 college students who have struggled with rising tuition costs and not enough federal aid to go around.
However, your posting went on to say some disturbing, and frankly, untrue things about our organization, such as a false claim that we discourage students from seeking federal financial aid. We hope readers check out the link to the document, so they can see that EduCap’s Demystifying Financial Aid spends the largest percentage of its pages HELPING students apply for and get their federal aid and loans. EduCap’s loans serve as a supplement to federal financial aid, not a replacement.
It’s also important to know that EduCap provides exclusive access to the largest scholarship search engine on the Internet to its students to help them get all of the free scholarship money for school that they can find. In addition, we also provide a notice with links to the US Department of Education encouraging them to get their federal loans first and refer our students to federal loan provider. Any statement by New America that we “actively discourage” students from taking out federal loans is just plain false.
Much of the rest of your posting calling for reform, transparency and the end of sweet heart deals between lenders and universities. We couldn’t agree with more. EduCap is a leader in pushing for reform and that is why we find it so disturbing when you make false claims about our organization.
George Pappas
http://www.loantolearn.com/
To George Pappas
Hey David, maybe next time
I can think of a good reason
In the article you stated "We can’t think of a single case in which a student is better off receiving a private loan than a federal loan."
I am 32 years old. I'm married, have an 8 year old child, own a home, and have lots of expenses. I want to complete college so that I can get a job doing something I love instead of working at this miserable call center for a pay rate that barely covers expenses. Incidentally my job is an hour commute from home, and with gas prices being what they are, I'm spending almost $350 per month in gas. I can't find work closer to home that would start me with a base pay that would allow me to continue paying the bills. So my choices seem to be to continue like I am now until I die, as I will never be able to retire, haven't saved a penny, or get a degree and a career.
I've applied for student loans, and the maximum I qualify for does not cover one year of the online school I would need to go to. I can't attend a brick and mortar school due to work schedules between my wife and I. I can't cut back on work hours to part time as I could not afford my bills, and I certainly don't have the money to make up the difference between the loan and the tuition.
For me, the Astrive loan seems like a dream come true. It could pay my expense for 2 years while I stop working entirely and devote all that time to school. I don't like to get my hopes up though and I typically live by the phrase "if it sounds too good to be true, it probably is." But I did want to point out that for someone in my situation, it's really the only choice.
TO MATT
Do NOT go with Astrive!!!!
Do NOT go with Astrive!!!! I am warning you now!! While I was in school I had an 18% interest rate!!! Now that I am out and in repayment it is 11%. Much worse than federal loans! There are way better options!! Look into Stafford loans, ANYTHING! I will be screwed for the rest of my life because of these loans. I am expected to make payments of almost $1,500. How is that possible when my net income is $1,800!Don't do it!! They told me I have no other options for repayment (other than forbearance... which would mean more time at 18% - and I used the time already after graduation, so I don't have any more until 1 yr of on time payments). All I can do is pay the minimum or I will default. With federal loans you have more options!
To Alyssa and others with high interest loans
As a student with quite a few loans myself, mostly Stafford and Perkins, and looking towards grad school, I was interested in the Astrive student loans for several reasons the likes of which "Matt" has given as well. I would only look into it of course after I've exhausted my Fed eligiblity and the reputable banks that my schools suggests who have a proven track record and offering private loans.
My point is this.....several years ago when it was rumored that the interest rate on loans was going to jump a whopping 2 percent, everyone was saying "consolidate now" and "rates are at a historic low and you must lock in your rate before the July 1st deadline". It was at this time I read article after article about those who had mistakenly consolidated their loans to lock in a fixed rate, but only then it was 7 percent. I would read story after story that read exactly like...."I regret consolidating my loan back in 2003 because I felt that I had no other options and since I can only consolidate once, I'm screwed. My life is over.....I can't even make minimum payments! I've got a $700 student loan payment which is a third of my income".
So, now....private student loans are having the same fate. Why don't people use the same determination that got them that degree into looking into alternatives and educating themself on the process instead of complaining! If you don't like a variable rate, don't get a loan with a variable rate. And...if you have a high interest loan that you made a mistake in assuming, then....my goodness, just consolidate into a lower fixed rate. If you've already consolidated, then....go to a JC, take out a small loan like $500 and then consolidate again to get out of that 18%! It's simple....Astrive is not the only game in town and it's a risky type of loan the DTC as they call it; however....students need to inform themselves thoroughly if they get into a bind.
Your life is not over.....lol. No one's is. It's finance, not brain surgery here. :)
Matt you should look into
Matt you should look into whether the institution you plan on attending offers any private loans through the financial aid office. Most consumers by now have been turned off to the financial aid office with all the rhetoric flying around about "curruption". You will generally find that the rates for private loans are cheaper through your school. Astive is the First Marblehead "DTC" (Direct-To-Consumer) loan, they can charge you more b/c there is less competition through DTC and you don't have the leverage of the financial aid office on your side. Beware of for-profit institutions as Mr. Williams has alluded to (check the graduation rates and the federal default rates associated with the school). For-profit institutions sometimes don't have your best interest at heart.
Also, if you have a family member or somebody else willing to co-sign for you, you can sometimes get a lower rate then you would on your own. This is an investment as you know in your future, do your due-diligence and you'll be fine.
Matt, one more thing-exhaust
Please enlighten me
I cannot consolidate because I don't have a co-signer. No one in their right mind will co-sign a loan for $100,000. Would you? I didn't think so. I tried doing it on my own through Citibank and Sallie Mae and was declined.
I agree students need to inform themselves, but can you really blame students right out of high school for not knowing what to do? I listened to my financial aid office. I had no idea what was going on. My parents never went to college so we trusted what they were telling us. You can blame me all you want for not researching, but when someone at my school tells me these loans are my only option if I can't pay out of pocket, what am I supposed to do? (a big ten school, so it's not like it's a no name scam/rip off school).
It all comes down to thousands of families being uneducated about how the student loan industry operates. Changes need to be made, and I'm happy people are finally looking at it. It's just too bad all of this progress won't help those already out of school.
And yes, I feel like my life is screwed. If you have a better option for me, please enlighten me. It's easy for someone to say "do this..." "do that..." but in reality, there is nothing I can do. I have been researching and calling people for weeks and cannot come up with a solution. Loan companies are calling me daily because I can only make partial payments. I don't have that problem with my federal loans because they are willing to work with me as there are more options available for repayment. The only thing the private lenders say is that I have no options. I have three loans through one company and they told me they don't consolidate private loans at all... so everyday when they call because I only made a partial payment, I am getting three phone calls instead of one. They are all at the same interest rate so I don't see why combining them is going to kill them.
The only option is if S.1561 is passed allowing private unsecured loans to be dicharged in bankruptcy, but I can wait my whole life for that to happen. They are an unsecured loan with the name student in the title. There's no justification for treating private student lenders differently than any other type of creditor. I want to pay my loans, but if they refuse to work with me, what else am I supposed to do? So right now the only option I feel I have is writing my Senators to support the bill, and finding a second job, which is harder than I ever thought. I would throw a party if my loan payments were 1/3 of my salary. Right now as it stands I have $300/mo. left after those loan payments.... my rent is $700... plus food, utilities, etc etc etc. Even if I were able to consolidate, the payments wouldn't go down that much anyway (loan payment calculators on the lenders sites). I have looked into everything, so like I said, please enlighten me. Consolidation is not an option as my family said they can't take that kind of risk. I don't know anyone that would.
To Alyssa
Your life is not "screwed". You can manage your debt. You just need to do a little work. The first thing I would recommend is that you figure-out what your FICO score is. Law says that you are entitled to a copy of your credit report annually I believe. There are 3 major credit reporting agencies: Experian, TransUnion, and Equifax. Start with these guys. If your score is below 660 you are generally going to be in the "sub-prime" range and will be hard-pressed to find a really cheap alternative loan. Your FICO score is determined by the following (this was a recent distribution anyway):
Amounts owed: 30%
Payment History: 35%
Length of credit history: 15%
New credit: 10%
Types of credit: 10%
All of the above are directly under your control. So, if you make your payments on-time, don't incur any additional debt, and continue to live and breathe on this earth, your score is going to get better. A higher FICO will open cheaper refinancing opportunities for you. You're not locked into one loan type for the rest of your life. There is generally no penalty for prepayment w/ private student loans (check your loans though). Also, there are a ton of lenders getting into private consolidation, I wouldn't stop with Sallie and Citi. But you need to get your house in order so that you can dig yourself out of debt. That will require a budget and some short-term pain. You can also ask for a raise at work, or look into higher paying jobs. Get a roommate if you don't already have one, or find someone looking for a roommate.
The reason private loans aren't dischargeable in bankruptcy is to encourage folks to not do exactly what you'd like to do.....run-up a large bill and then default. Remove that lender protection and you'll have a lot more people defaulting on private student loans which will cause lenders to either 1) raise interest rates or 2) get out of the private student lending business altogether. Either way that translates into less capital (access) for your college education. Hand-outs don't encourage responsible borrowing. A little pain in life helps us to grow and become more responsible adults.
Patrick's Foolish Posts
Patrick,
You just blew alot of HOT AIR with your fancy breakdown of "analyzing" someone's finances, especially since it is someone whom you don't even know.... Nice hypotheticals, and a rather cookie cutter approach to budgeting.. but it's time to get into the real world. Did you not read the woman's post? She cannot even pay partial payments without screwing herself out of paying her rent! All she is asking is for her private lenders to work with her so that she can utilize her investment. Why should they get a penny if they cannot provide the "flexible" or "alternative" repayment plans that are plastered all over the back of their promissary notes? Oh yes, I forgot... you accuse people of not reading their promissary notes (see yet another post)... alot of audacity. Are you going to blame a person if they become ill, lose their job, or become partially disabled? Remember, NO MATTER WHAT, these loans must be paid, with no consumer protection. Like I said, time to join the real world.
I just "love" these big business Horatio Algiers types with their "pull yourself up by the boot straps" attitude... Ironically, they're usually the first to run screaming for help from whomever will listen if the financial rug gets pulled out beneath them, because being egotystical, self centered, and bull headed is in their nature. They do this all the while preaching against other's perceived "irresponsibility."
Alyssa, I think it is great that you are fighting for consumer protection against poor disclosures and predatory lending practices. Private loans have become the new cash cow for the financial services industries... private loans are CONSUMER debt, not federally guaranteed debt. They should be treated as such, and a good faith effort should be made to pay them. HOWEVER, YOU CAN'T SQUEEZE BLOOD FROM A TURNIP.
One more thing
"The reason private loans aren't dischargeable in bankruptcy is to encourage folks to not do exactly what you'd like to do.....run-up a large bill and then default. Remove that lender protection and you'll have a lot more people defaulting on private student loans which will cause lenders to either 1) raise interest rates or 2) get out of the private student lending business altogether. Either way that translates into less capital (access) for your college education. Hand-outs don't encourage responsible borrowing. A little pain in life helps us to grow and become more responsible adults. "
This is not true, rude, and accusatory... current bankruptcy protection laws that recently took effect would prevent this, even if Private Student Loans were included. This is a smokescreen that student loan industry folks are using to protect their interests... Do you work for the student loan industry or financial services industry? I suspect so....
I don't want to "run up large bills and default"
Believe me, declaring bankruptcy is the LAST thing I want to do. I don't want to "run up large bills and default". That is the idea loan companies want to get across, and you scare people with higher interest rates. Give me a break! There is no shortage of companies willing to loan money to students!!! Something needs to be done, and even if that did happen, it would drive more students toward federal loans where they should be looking in the first place. How many more billions do these companies need to make? Yet I am being harrassed daily because I can only make partial payments. The fact is I am TRYING to pay, but I cannot afford the MINIMUM payments. They won't work with me and told me on numerous occasions that the only option I have is to pay the minimum or I will default. So if they won't work with me, what else can I do? I am paying what I can. I am trying to find a higher paying job but because I have little experience it is hard! I am also trying to find a second job but with the hours I work now I can't even get an interview! I have anxiety over this every second of the day. I am not just some moron trying to take advantage of the system.
You assume I am just a young idiot that wants an education for free and that is NOT the case. The fact is I am trying to pay and I can't. I'm not ignoring the bills and phone calls from these people. I'm trying to find a second job, I don't have food in my fridge half the time, and I can't even tell you the last time I bought something for myself, even a t-shirt!! So stop assuming. You are only looking out for huge companies making billions while young Americans with degrees struggle to pay electric bills.
Another thing... even if I weren't in this situation I would still fight for S.1561 because the law only makes sense to loan companies. My private loans don't have the same benefits as federal loans yet are treated the same as them...... and child support.. and criminal fines, etc in bankruptcy. It doesn't make sense. These loans are worse than some credit cards. Like I said above, it is an unsecured loan with the name student in the title. Why should they be treated the same? They shouldn't These companies are loaning out way more than they know they should because they can siphon money out of people forever! It is disgusting!!
If I was unable to consolidate through Citi and Sallie Mae, why would I ruin my credit even more by trying other companies? No one will consolidate without a cosigner. Even if my score was a lot higher they wouldn't do it. I'm not going to magically make a ton of money overnight. If I made more I wouldn't even have to consider consolidation in the first place.
Alyssa/Chris
I wasn't attempting to be rude or insensitive at all. Nor do I think Alyssa is an idiot or am I unsympathetic to her plight. Only suggesting a few alternatives to defaulting. As bad as things are for her now, a default is only going to make them worse. I know what I say absolutely incenses most of the people posting here. However, the facts are the facts. Alyssa, you have dug yourself into a hole, and only you are going to get yourself out of it. You can wait for legislation to save you (see more below), or you can save yourself. There is something to be said for the latter believe it or not. Chris, I don't see any practical "real world" guidance for Alyssa in your posts. In fact, I see none. Life is hard for everyone, even the "Horatio Algiers" types you and others so thoroughly dehumanize here. You sign a contract and people expect you to honor your commitments. All the legislation in the world isn't going to change that. There are no free lunches in life. The sooner you learn and accept that the better off you are going to be. That is the real world Chris.
As for my comments on bankruptcy, private loans generally aren't dischargeable today to my knowledge (I'm not a lawyer). Senator Dodd and Shelby were trying to change that I believe. I think the latest I heard is that they would be dischargeable after 5 years of repayment or something to that effect. Private loans are special, they don't have any collateral backing them and are made to students who have no credit histories. It's a leap of faith that they get paid back in four or so years after folks graduate. Why do you think federal loans are also not dischargeable? More people will default without this provision. I'm not going to debate when people should be released from their obligations. I don't think it should be harder for folks who suffer debilitating injury or other catastrophe that is not self-imposed though. But I haven't given that issue a lot of thought so I don't have any of my "hot air" for you on that one.
Ideological
" All the legislation in the world isn't going to change that. There are no free lunches in life. The sooner you learn and accept that the better off you are going to be. That is the real world Chris."
Patrick,
(sighs) you are once again missing the point...
No one is asking for a freebie. What is being asked for is relief from predatory lending and mistruths by the private loan industry so these people can dig themselves out of debt. Most people WANT to pay their loans, especially if they want to have their dreams fulfilled of purchasing a home,a car, or sending their own children to college. I think it's obvious... credit ratings talk, the devastation of bankruptcy talks louder. But, you can't rehabilitate a private loan and get back into a life of prosperity and financial responsibility when a private lender will not offer you the opportunities to do so, and perhaps even adds 25 percent in fees if you go into to default due to unforseen circumstances. Furthermore, private loans are CONSUMER DEBT. They should not be given the same protections as federally guaranteed stafford loans (for example). That's not what I as a U.S. citizen and taxpayer want... I don't support corporate welfare. The private lenders took a RISK on you as the borrower by checking your credit and making a decision... that is also their responsibility.
Most people would agree (perhaps not) that the federal direct stafford loan program has many flexible repayment plans. A student may have an enormous amount of federal debt, yet still pay a reasonable payment and even rehabilitate his or her defaulted loan due to the income contingent plans available if necessary. HOWEVER, the private loan industry is using a bait, hook, and sink approaches to grab new business and mislead students with vague information, and even outright mistruths . Students are finding themselves misinformed, the practices of offering interest rates are discriminatory, and no course of action is available for students in need of help. Unacceptable.
Patrick, you are demonstrating a rigid, fundamental ideological difference that is based upon politcal affiliation or a corporate interest. Would it surprise you that BOTH Republicans and Democrats are supporting many of the new bills going through committee right now?
I suspect that there is an affiliation between yourself and the student loan industry, OR you are staunchly stuck in one perspective based upon your ideology. Time for a wider perspective.
I know it is difficult to
I know it is difficult to hear the truth (sigh) but Chris, with all respect, I think it is you that has the ideological blinders on. By the way, nice guess on my political afilliation, but alas, I'm no Republican. Republicans, Democrats, they just want your votes by proffering short-term solutions to long-term problems. Americans have short attention spans and Congress is fully aware of this. How else can you explain the reduction in interest rates for the next few years on new Stafford loans in H.R. 2669? Yes, explain this to a fellow ideologue Chris:
July 2008 6.12%
July 2009 5.44%
July 2010 4.76%
July 2011 4.08%
July 2012 3.40%
Back to today's 6.80% in 2013!
Wow, 3.40% in 2012! That's very close to the rate of inflation! What a deal! Borrowers in 2012 will be paying-back less valuable dollars over the years to lenders just because they went to school in 2012. But in 2013, when it gets too expensive for the government to subsidize a 3.40% interest rate, the poor souls going to school that year will pay 6.80%. Magnificent-no? And you say private loans are priced in a discriminatory fashion (I'll comment on this later). Can Coumo "garner" a settlement out of the government too I wonder? I need to send a letter to him about this! This is what I think is referred to as "year-lining"! Despicable!
Do you know what predatory lending is Chris? Can you give me a rational definition and how and where it applies in private student lending? Or, will the ideologue in you come out with something to the effect of "I know it when I see it". Sounds like you are accusing the entire industry of it? There was a study that was done last December by the Institute for Higher Education Policy on Private Lending (The Future of Private Loans: Who Is Borrowing, and Why?). The data was on one year only, so it's hard to draw too many conclusions. However here is some of what it said:
"Eighty percent of dependent undergraduate private borrowers and 76 percent of independent undergraduate borrowers in 2003-2004 also received a federal Stafford loan. Further, of those who received a Stafford loan, 82 percent of dependent private borrowers and 53 percent of independent private borrowers received the maximum Stafford loan."
"Ninety percent of professional private borrowers received a federal Stafford loan in 2003-2004, as did nearly three-quarters of graduate students. Further, of those who did receive a Stafford loan, 90 percent of professional students and 63 percent of graduate students received the maximum amount."
"Still, it is troubling that a substantial proportion of private borrowers had not obtained or maximized federal loans."
I don't think these numbers are bad enough to support your assertion of predatory lending (for this year anyway). Yes, more can be done (and will be done) to make disclosure better to steer people to Federal dollars first. But remember, as I said Chris, the world is not a perfect place. You won't every see 100% of private borrowers utilizing the full extent of Federal dollars. For some, this may be a perfectly rational decision based on who knows what? Point is, people have the freedom of choice to make their own decisions.
That brings us to the discriminatory pricing charge again. Incorrect on this count too Chris. Pricing with school attended and other factors like graduation rate is not discriminatory. Is it good public policy to bankroll schools that graduate people who immediately default on their loans or don't graduate many students at all? The government doesn't think so. They remove schools from Federal program eligibility who have high default rates (something like 3 years straight of 25% or more cohort default rates-I don't remember). There is ample evidence (government tabulated I might add) that borrowers who attend better schools have fewer problems paying back their loans. It makes sense doesn't it? These folks generally worked a little harder in high school then the rest of the population to get to that better school. Translates into their college performance and after school as well since they have fewer problems paying back their loans. They should pay less. We want to reward good behavior right Chris?
Private loans
I'm a little late here to post I guess, but I'm assuming that someone else in my position will stumble over this page as well while researching the scandal behind private student loans. I started college in 1999 and before entering into college my parents attended a meeting that was being held by the financial aid director to help parents and students have a CLEAR understanding of how to pay for college. Here's the ironic part: the meeting was more about pushing students to borrow from Key Bank then it was for federal loans. They pushed borrowing the entire tuition for college using Key Bank by saying that when the student graduated they would only have to pay one amount each month rather then 5 different loans if you use federal loans.....my parents and I trusted the school (as well as receiving pamphlets in the mail pushing Key Bank from the school), assuming they would only give us the best advice and guidance, so we borrowed 4 years of tuition from Key Bank, never once applying for any federal student loans. I graduated in 2004 and when I did I got slammed with a $44,000 loan, not realizing that the interest on it was killing me even while I was in school, the min. payment they wanted was way to high for me to pay all of it. I work two jobs and even with that just getting out of college I couldn't pay that much, so i deferred the payments, not being told that each time i did that i was being hit with a higher monthly payment after the deferment. When that ran out my payment was almost $100 more per month. I'm not a deadbeat and I work very hard as well as two jobs, but I couldn't make this payment. They would not consolidate and I talked to Key Bank almost everyday looking for a solution and nothing. I was paying $100 to $200 a month being thats all i could do, rather then ignoring the loan. After a year they turned me over to a lawyer threatening to put a judgement against me unless i paid the entire amount, which by this time had accumulated over $7,000 in interest. Im now working with a lawyer, but the loan defaulted without my knowing or being told and there really aren't any options for me...i can consent judge which leaves me paying this loan for the rest of my life and always having a mark against my credit, or I reinstate payments and not have a place to live, food to eat, a car to drive, because now the payment is about $600 or more a month and i can't make that and still pay my rent, food, and other bills. PRIVATE LOANS are the worst option. If I could go back in time I would have never attended college. You can say that it's my own fault, I should have done my homework, but I trusted my school and the financial aid director and maybe I should have known better, but one mistake will follow me around for the rest of my life. So whatever you do stay away from private loans -- they are NEVER the answer no matter what your school tells you!
Just got astrive
Point of agreement?
I sense quite a deal of tension in the air here. To avoid the chance that the reader will erroneously speculate regarding my political/ideological stance, I have none. I am a pragmatist. That having been said, I wish to make a point that may indeed sound quite ideological.
Nearly everyone here is in agreement regarding the danger presented by private lenders. In fact, I would go further and say that everyone agrees that the private loan industry is composed of some fairly shady companies who are guilty of practices that could be described as disingenuous, to put it mildly. The main division of opinion, however, is whether to blame the sharks or the people who allowed themselves to get bitten by them.
However, this dichotomy of blame is serving to obscure the root of the problem. As was pointed out, a significant portion of undergraduate borrowers of private funds only did so after their federal eligibility was exhausted. The most salient conclusion to be drawn from this fact is quite simple: our government's financial aid programs are wholly inadequate. Or, to express it in a way that is more pleasing to the conservatives and libertarians in the mix, we as a society of have misplaced our priorities. We spend ungodly amounts of money on a military complex that is far beyond what is necessary to "defend our freedom," and yet we fail to remedy so basic an issue as making our higher education affordable.
Forgive my political incorrectness, but perhaps I can express this in a way that will make conservatives identify with this problem. Much fuss has been raised over the issue of immigrant workers performing jobs that Americans are unwilling to do. If we do not fix our educational system, we shall eventually need to import workers for jobs that Americans are unqualified to do.
Regarding the insinuations in previous comments that those with unmanageable student debt have "gotten what they deserved", so to speak, I wish to point out that although there is a good deal of wisdom in the maxim "You reap what you sow," this wisdom only has applicability for someone who has yet to sow. However, when what is at issue is remedying a mistake that has already been made, such advice is the result of either arrogance, callousness, or naivety. These folks have learned their lesson--now what? Unless one believes in reincarnation, they will never get a chance to apply what they have learned.
And so now I offer my advice to those with unmanageable debt: Don't pay it. It is better to have horrible credit with money in the bank than to have good credit and not be able to pay rent. If you have ethical qualms about this, remember this is not like failing to pay back a friend or relative. I promise you, nobody at at Chase or Bank of America will suffer a loss in quality of living for your failure to pay. You need that money far more than do they.
I feel overwhelmed
Opting Out IS an option
I am 28. I am just now back down to the initial principle amount that I borrowed in Private Loans, and I graduated college in 2001 when I was 21. The job market was less than ideal after September 11th and I was making $9-10 an hour for my first 3 years out of school. I was working up to 3 jobs at one point. I had no money to fix my car. My loans were more than my rent. I got into credit trouble because I was stubborn and prideful and convinced things would turn around, and I put rent and utilities and food on credit cards.
I finally chose to move back home with my parents rather than default on my loans, which required me to move back to my home state, and forced an end to a relationship which would have probably led to marriage and a child had I been able to afford such a luxury. My parents cosigned for my private loans, so defaulting was never really an option, since the little equity in the house is all they really have for a retirement.
I moved on to making $13 an hour at a corporate job, and I took a second job. Working 70 hour 7-Day weeks and without rent hanging over my head I was able to pay down my credit cards in a year and get enough money saved up to be able to afford trying to make a move into my field finally. I took a leap of faith and began freelancing and working through temp agencies with no health benefits or garunteed hours, before being hired full-time by one of their clients. I am finally in a stable position where I can afford to make my loan payments and pay for rent and food at the same time!
I am almost 30 years old already and there is no way for me to regain those years where I should have been out exploring the world and travelling and enjoying the headstart that college was supposed to afford me. Instead I spent most of my twenties struggling with depression and trying to keep my head above water, putting off marriage and a house that is getting more unaffordable every year.
Universities treat students like an assembly line process in a lot of cases, they collect your money and push you through. The most valuable knowledge you will gain will only be after you join the workforce. I think I would have been at an advantage looking for jobs if I had 4 years experience and no degree as opposed to a degree and no experience. I would seriously reccomend against taking out private loans above and beyond Stafford Federal Subsidized loans. Unfortunately, I have yet to see a school aside from community college that you can afford with what the Government will lend you in the United States. I know I had a 50% paid in academic scholarships and tuition assistance, and my school still cost me about $14K a year. $56K debt plus interest is a serious handicap when trying to get your life started. Many are worse off than me. I would almost recommend going out of the country or not going to college at all.
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