A friend on Facebook posted a link to the following New York Times article today. It’s a fascinating editorial piece on student loans, so I thought that I’d repost the first few paragraphs here.
Better Disclosure for Private Loans
About two-thirds of bachelor’s degree recipients borrow to complete their educations. The fortunate among them rely on federal loans that offer a low, fixed-interest rate and broad consumer protections that allow them to defer payments — and stay out of default — if they lose their jobs. But many students have been roped into costlier private student loans that have variable interest rates and few consumer protections.
This means that borrowers who fall on hard times have few options other than default, which can make it more difficult for them to obtain credit, find jobs or rent apartments.
A new study issued jointly last week by the Consumer Financial Protection Bureau and the Department of Education makes clear that the government, Congress in particular, can do a better job of educating families to the significant differences between private and federal loans while making sure that colleges and lenders are upfront and honest about risks.
The study’s most distressing finding is that more than 40 percent of students who borrowed privately were in fact eligible to borrow from the safer and generally less costly federal program. Those students, and the parents who co-signed for them, simply may not have known the difference between the two kinds of loans because no one told them. But because of variable interest rates, even sophisticated borrowers may not be prepared for “payment shock” when graduation rolls around and the first bill arrives in the mail.
You can read the rest of the article by clicking here. You can also read the study by the Consumer Financial Protection Bureau and the Department of Education by clicking here. Both of these links are also available in the Other Links You May Want To Click section above.
I’ve talked about this before, but I am a big proponent of personal responsibility. If you sign to take out a loan, that is your decision and you ought to own up to it. However, there are some very deceptive practices out there, and I don’t think that every 18-year-old kid is wise enough to understand all the intricacies of signing a loan. I certainly wasn’t. I signed for my first student loan when I was 20 and halfway through a college degree, and it still took me quite a while to understand the seventeen pages of information that I was given by the loan company.
Student loans are invaluable ways for people to gain access to higher education, but if lenders are allowed to keep taking advantage of young adults new to the financial world, all we’re doing is setting the next generation up for a lifetime of financial failure. Surely we can do better.