Students, Beware: Private Student-Loan Companies Are Not Your Friends

[applegrove]

Students, Beware: Private Student-Loan Companies Are Not Your Friends

by Kay Steiger at the Nation

http://www.thenation.com/article/169728/students-beware-private-student-loan-companies-are-not-your-friends

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Here’s one way the industry goes about its business: though private student loans typically come to students through a menu of lending options from a college or university’s financial aid office, along with federal options like Pell grants and subsidized Stafford loans, the CFPB report explains that many of these loans are offered directly to students without input from a financial aid office. This tactic, called “direct to consumer” lending, results in “significant over-borrowing.” This is problematic because “over-borrowing increases the likelihood of default, to the detriment of both borrower and lender.”

And the scam gets worse. Though an estimated two-thirds of private student-loan borrowers don’t understand the difference between private and federal loans, there is at least one critical difference: private student loans lack key protections that come with federal student loans—most notably, a variety of options for delaying or reducing payments if students encounter economic hardship.

“That confusion has been deliberate,” said Lauren Asher, president of the Institute for College Access and Success. “People get stuck with these loans, often without clear information.”

The worst part of private student loans is that when students have run out of all other options and need to declare bankruptcy, they can’t. (The one exception to this rule is when students can prove an “undue hardship,” but this standard is nearly impossible to meet, and an analysis by a bankruptcy lawyer organization found that those who qualify are “very close to the poverty level with little or no hope for improvement.”)

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[Wednesdays]

1. That "They're not your friend" is a story that's been around for years

But still needs repeating!
K&R!