Private Student Loans No Better than Using a Credit Card for College
By Charlene Crowell
An analysis of the recent Consumer Financial Protection Bureau’s Student Loan Ombudsman report concluded that private student loans (PSLs) are a risky and high-cost method to pay for a college education. PSLs comprised 7 percent of student loans taken out last year and are 15 percent of the nation’s total outstanding student loan debt.
American consumers currently owe approximately $165 billion on PSLs.
“Choosing to pay for college through a private student loan is no better than paying for it on a credit card. Private student loans are generally more expensive and risky for consumers than more-common federal student loans, and dealing with private student lenders can be a tremendous hassle,” states the PIRG analysis.
PIRG also found that high debt borrowers are also disproportionately PSL borrowers, often with $40,000 or more in total debt.
Even worse, PSL repayment was the subject of nearly 65 percent of the more than 4,300 complaints received by CFPB from October 1, 2012 through September 30, 2013. Repayment concerns included fees, billing, deferment, forbearance, fraud and credit reporting. Additionally the inability to repay was found to a pivotal factor in default, debt collection and bankruptcy.
How borrowers incurred these PSL debts is also addressed by PIRG.
“In 2008, a majority of PSL borrowers took out less in federal student loans than they could have. Of these borrowers, a full quarter took out no federal student aid whatsoever. . . .In large part, private student borrowers fell prey to a range of unsavory marketing tactics. . . .Some lenders deliberately misled borrowers into believing that their private student loan products were superior to federal loans.”
These kinds of financial abuses are among the reasons why the Center for Responsible Lending and other consumer and civil rights allies pushed for and won historic reforms with enactment of the Dodd –Frank Wall Street Reform Act When lenders of varying financial products and servicers operated with scant – if any – financial regulation, untold abuses occurred.
Now with the CFPB at work investigating complaints, it is important for consumers to share what is wrong or what is not working in the marketplace.
The CFPB’s Student Loan Ombudsman is a statutory office created within the bureau to assist consumers in resolving private student loan problems. Through this effort, the CFPB assisted hundreds of borrowers to obtain relief from their lenders. The median monetary recovery is $700; the maximum amount of relief granted thus far is $75,000.
Geographically, PIRG found that states with higher average student debt also tended to have borrowers who complained to the CFPB more frequently. Overall, borrows from the Northeast were much more likely to file a CFPB complaint, with consumers from the District of Columbia having the highest complaint-to-borrower ratio. Conversely, borrowers from the South and Midwest were the least likely to complain.
These regional variations could warrant additional research, especially when one considers that the vast majority of Historically Black Colleges and Universities are located in the South.
Further, How America Pays for College, a 2012 research report from Sallie Mae, the nation’s largest financial services company specializing in education, found that among Black families, 51 percent borrow for college costs and 35 percent of Black students take out loans in their own names to attend four-year institutions, both public and private.
Consumers of color – those hardest hit by student loan debt – should not suffer in silence with student loan problems. If you or someone you know has been harmed by financial abuse, file a complaint with the CFPB. A convenient online form is available to take complaints on student loans and other lending areas at: http://www.consumerfinance.gov/complaint/.
The price of higher education is too high and the multiple sacrifices to earn credentials too dear to allow abusive financial practices to go unchallenged.
Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.email@example.com.