Private Student Loans
So, I was watching TV the other night and I saw several advertisements for companies that help kids pay for college. They’re private student loan companies like Think, Astrive, NextStudent, and others.
The commercials promise $40,000 per year to help pay for college with no upfront fees or hassle and no need to pay any of the money back until after graduation. Seems too good to be true, don’t you think?
As noted in The Washington Post, the personal student loan market is booming.
Families took out $17.3 billion in private loans in 2005, up from $4.5 billion in 2000, said Sandy Baum, a senior policy analyst at the College Board and a professor of economics at Skidmore Collage. While private loans were only 4 percent of student loan volume a decade ago, they are now 20 percent, she said.
There are several reasons for this boom, including a freeze on federal student loan amounts since 1992, the ever expanding cost of a college education, and a general disregard for incursion of debt.
The ads for these private student loan companies and their websites have little mention as to the general interest rate which is applied to the total amount after graduation. After a little digging, I was able to find a site that helped explain it a little bit.
Private student loans typically have variable interest rates, with the interest rate pegged to an index, such as LIBOR or PRIME, plus a margin.
Based on that, the student gets a loan comparable to a mid-range credit card. Maybe not such a bad deal after all, right? Well, maybe not.
New York Attorney General Andrew Cuomo, has been investigating the $85-billion-a-year student-loan industry since last November. Cuomo discovered that loan companies were bribing their way onto schools’ preferred lender’s lists, which students trust to lead them to the best deals.
Prompted by Cuomo’s findings, the Senate began its own investigation and released a 600-page report in June that revealed misconduct among lenders, regulators and universities was much more common than previously thought. Violations included lenders paying for access to students, using official school logos to market their loans and working out of college financial aid offices — acts as insidious as they are unethical. The report also uncovered what Senator Ted Kennedy called “inappropriate marketing practices” used by lenders to over-emphasize private loans by omitting information about unsubsidized federal loans, which have lower interest rates than private ones and are not need-based.
So, as in most businesses, there are disreputable and unethical companies. Not all that surprising, but the issue of confusing loan terms and fine print seems to be leaving tens of thousands of students with an enormous debt burden at the completion of college.
Nicole Gibson, 26, took out six private loans from 1999 to 2004 to finance her education at the Rochester Institute of Technology in New York. Like thousands of college students across the U.S., Gibson was steered to private loans by her school’s financial aid office and is now struggling to pay them off. Her monthly payments are $1,300 — almost exactly how much she earns each month as a graphic designer. With few places to turn to for help, Gibson contacted a number of lawyers to explore consolidation and payment-plan options, only to be told that nothing can be done. “One of them actually told me to marry a rich doctor,” Gibson says.
“Private loans are the Wild West of the student loan industry,” Cuomo told members of Congress.
Does anyone have experience with taking out a private student loan? What was your experience like? What are your repayment terms? Is this a wild west industry filled with corruption or is it an industry which helps kids get the right start in life?
I’d like to know more.
18 Comments
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I have taken them out… VERY BAD situation, and those private loan promissary notes have very vaguely worded repayment options to make them sound flexible and fair…. they are NOT at all. Whats infuriating is that this consumer debt lacks consumer protections afforded by the current bankruptcy laws… I think that everyone wants to pay, most people aren’t trying to scam the loan companies… but with such inflexibility, many who take out these loans get stuck with enormous payments and no way to reasonably pay.
I took one out my last year of college and had a FINE situation. There are plenty of good alternative providers out there that you do not hear about. If school’s tuition did not go up so much every year and crush inflation then there would not be these companies. Without them millions of students would not even be able to go to college and miss out on a huge opportunity to better themselves not to mention the best years of your life! Just do your research before you do anything and you will find a reasonable rate and fee at a qality ethical company looking to help tomorrow’s future.
The company that my husband went through to get his private loan is one of the ones that is getting nailed by Cuomo. All of the student loans in this family go through the one company and they are the biggest pain in the butt to deal with. We have had payments posted to the wrong loan( same last name) and the company refused to waive the fees caused by it’s mistake, when we tried to consolidate we got nothing but headaches and the customer service sucks. They sent us bills saying we owed nothing, then when we paid nothing they tried to send us to collections. Oh and they held up all the consolidation paperwork when we tried to go through a better company. That’s when we found out the one loan was private. They were going to lump it in with the others but once we wanted to go with the better interest rate then they pulled out that promissory note. We almost called the attorney general’s office. But he beat us to it.
Oh and the company is Nelnet. And the private loan was taken out at Fredonia during the times they are in trouble for.
I am all too familiar with both student loans of all types and parent loans as well.
My opinion: The private loan industry thrives because students and parents are too lazy to read the fine print, which is really surprising to me because the loans are mainly to supposedly intelligent people (students AND parents) who have a lot on the line. [Then again, the market for sub-prime mortgages is pretty lucrative, too.]
There are many alternative loan sources: The usual Stafford loans (federal), most commercial banks, private loan institutions like THINK and even some universities will lend money to cover tuition costs. There are also home equity loans (for homeowners) that provide some tax advantages.
I can appreciate that students may borrow too much and gamble that they can land a good enough job to pay off the debt. However, I can only call them irresponsible for not researching and understanding what they were getting themselves into by signing a long-term loan fixed to a variable-rate instrument like the prime lending rate or 12-month T-bills.
I have not yet read a loan statement that did not spell out the rules, in their entirety, in the 8 pages of fine print. All it took was the patience for me and my kids to wade through it. They are NOT written in legalize, and they are generally very well spelled out (which is why the lawyers for the RIT graduate could not find a loophole to help).
I do not share the opinion that this is a Wild West Industry. It does fall under the “buyer beware” category.
Moral: Don’t be an idiot. This is your future livelihood. Study the topic of loans much as you would any college course. Do your homework.
BBD
And don’t get me started about how our instant gratification society doesn’t think about saving for the future until it is way too late…
While I appreciate Blood Donor’s comments that, yes, there is an element of laziness here, that doesn’t excuse the fact that colleges and loaning agencies consorted together in an unethical way. I had to pay for college myself. I applied for my loans myself. I spent countless hours in the financial aid office myself. I was 18 and just trying to figure out how in the hell I could afford my education and I trusted my financial aid officers who told me, “Here are the loans available to you.” Between working, going to school, campus and community involvement, there was a huge element of trust I had to place in administrators. I would be furious if I found out there were better ways to pay for college, and my financial aid officer had only offered me certain packages with lenders that were giving kickbacks to my college and thats why they were pushed as opposed to what’s best for the student.
Most of my loans are federal so I’m not as bad off as some, but it is still a $50,000 burden I will have to pay back eventually. Not to mention I plan to go to graduate and law school when I return from my research fellowship. I just think your comment, while not unwarranted, is a bit too general to just blanket over the whole scandal.
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Getting fucked.
I agree with Buffalo Expat’s remarks that there are no excuses for the collusion that has taken place between university guidance officials and for-profit loan companies. They preyed on naive 18-year-olds and will hopefully pay a price for their profiteering. On their own, I would not expect many 18-year-olds to even know what questions to ask much less know if the honest answers were being given.
I’m actually more offended at lazy parents than at the students. Where are the parents in all of this? Having a child turn legal does not suddenly excuse a parent from providing guidance, especially on something as important as going into major debt. That’s the part I don’t understand. It’s irresponsible, inexcusable and incredibly poor parenting.
BBD
We took out a loan for our daughter with Charter One Bank, imagine our surprise when we started getting bills from NelNet!
Charter One sent us a Disclosure Statement.
Amount Financed: $23,000
Finance Charge: $17,795.20
Total: $40,795.20
annual percentage rate…6.389, which didn’t sound bad, must be in something in the fine print. You have to be a banker to understand it.
I’ve been keeping an eye on the student loan industry for a couple of years, now, and I have to tell you that federal student loans are a scam, and are ruining people’s livelihoods due to an astonishing lack of consumer protections.
Private loans, however, are far worse in terms of the true cost of the loans, and also are exempt from bankruptcy discharge.
These loans are a banker’s wet dream. All of the interest that a credit card carries, but none of the protections.
This is why you see Astrive, Think, and other private lenders popping out of the woodwork. Particularly on MTV who, by the way, have “partnerships” with “Charitable Foundations” such as Sallie Mae, and the College Board.
What a cruel joke to play on low and middle income students.
We borrowers are beginning to band together on this. Come to StudentLoanJustice.Org to find out more.
I am not sure what all the fuss is about. The federal student loan program is pretty good and provides decent funding – through the Stafford Loan (http://www.StaffordLoan.com) and the federal PLUS loan (http://www.ParentPLUSLoan.com). Combined, you can borrow up to the total amount of education at fair rates and fees. The other programs you mention are private student loans with market rates. If people choose to apply for them for their reasons, then they are choosing to pay more.
Yes – The marketing of private loans will be better – but private student loan companies can afford more marketing because they make a lot more on each loan.
I don’t like Bush but the country voted him in…
Nice article on Think in today’s Buffalo News business section. They seem to be growing pretty quickly and could turn into a nice job-creator for Buffalo.
Everyone needs money for college, rt?
I find it pretty interesting that Geek watches those commercials and wonders how the process works, does a little digging into the private student loan scandals, and asks a few pertinent questions while Matt Glynn from The Buffalo News writes a puff piece on making those commercials. In the business section of the paper for chrissakes.
Or Barry Heneghan saw the article here, called over to a friendly reporter at The News and had a puff piece written…one way or another.
“Nice article on Think in today’s Buffalo News business section. They seem to be growing pretty quickly and could turn into a nice job-creator for Buffalo.
Everyone needs money for college, rt?”
Sounds like they’ll soon need the entire office they share with BRO – they’ll get it when the magazine eventually folds…I think they actually own it all anyway. So, good for the Think Financial good ‘ol boys club!
What they don’t tell is that you can’t lock the interest rates on private loans or consolidate them and lock the interest rate. My research was impeccable and I did a lot. But you can spell it out all you want on paper, most people will miss some information. What the government needs to do is clobber these crooks and lock interest rates at a reasonable rate. Calling people idiots in this situation because of what you percieve to be lack of thorough research is your own misgiving since this is the biggest problem facing college graduates next to landing a job that actually pays.
TD
Like most students fresh out of high school I knew that I had to go to college in order to succeed in life. What I didn’t know was that the college of my choice had already set out to ruin the lives of its customers (students) and reap huge profits in the process. This is my sad story.
I wanted to attend Pennsylvania Culinary Institute, a reputable Culinary school, at the time of my attendance, #2 in the USA for schools of its kind. What I didn’t know was that these 2 year trade schools, aka diploma mills, were hit hard by the lobbying of private student loan lenders. Upon taking my tour of the school, the vultures in the admissions (read: sales) department had already begun seeking my signature on loan forms. Before even finishing the tour, they tried to get me to sign BLANK loan forms “just in case” I wanted to attend school. Once I decided that I wanted to attend, they told me in order to go to school here, you must sign for these loans unless you plan on paying for school yourself, in full. So, like any eager student assuming my college could do no wrong, I had my dad sign as the mandatory co-signer for my loans. They told me in Financial aid, that most of my money would come from the Federal Government, in Federally backed loans, and that I would get the maximum amount allowed by law, and the rest of my funds would come from Private Loans, and all I had to do was sign the papers and they would file it all for me. 6 months later I find out that not only did I NOT receive federal funds, 100% of my cost would be covered by high interest private loans (minus the measly amount that I received from the Pell Grant) and that it was all owned by Sallie Mae. I later found out that it wasn’t mandatory to have a co-signer, I wasn’t required to use Sallie Mae to fund my education, and that there were many federally backed loans that I could have applied for to attend that school. Now, I have about $48,000 in private loan debt that was signed unto me before I knew the consequences of trusting my school to fund my education. I have since called the department of Financial Aid at PCI to ask questions however the entire department gets re-staffed every year, so none of the original employees are there to help me. All I can offer to other students for advice is do your homework on loans, and never believe what they tell you in financial aid. Now, no matter what I do, whether or not I am in school or unemployed, the interest will continue to accrue, and then capitalize, until my 30 year payment plan has expired (30 years is the only plan I can afford, and my current payment is about $380 a month, even though I am going back to school to get a bachelor’s degree and am currently unemployed.) I paid over $4,000 worth of interest in 2007, and reduced my principal amount by less than $700. What kind of financial aid is this? I’ve never had less money in my life.
ccox@gmail.com
I had to have the private school loan money to go back to school. I was a social worker making 23,000 dollars a year for 9 years and went back to school to get my masters in special education. I now make 30,900 dollars a year and owe 58,000 (stafford,etc.) and 23,000 astrive. ASTRIVE SUCKS!!!! I borrowed 20,000 and they charged 2,000 right off the bat. I have been paying 222.00 a month for 2 years and I now owe 23,000!!!!!!!! Don’t do it!!! I would rather had given hand jobs at a truck stop to put my way through school!! DON’T DO IT!!!!!!
ASTRIVE will sell your loan to a junk company.
Bottom line:
ASTRIVE will package a bunch of loans they write for a HUGE origination fee and reasonable interest.
They will the sell you loan to another company who will jack the interest rate and seemingly make it as difficult as possible to pay your bill on time. I dont get regular bills from the company that bought my loan from astrive, they just send me bills with ridiculous late fees.
I know every troll on the interwebs will just tell me it’s my own fault, but hey when your parents cant afford to pay for your education and you’re working two jobs to pay for it and get a loan that screws you over like this it’s worth mentioning. Besides I was an english lit major not an economist.
The company that bought my loan was “National Collegiate Trust” or “American Education Services” I dont know which one actually own the loan because Ive never been sent written notification that ASTRIVE still doesnt, they dont send regular bills, and refuse to give me a payment booklet… WTF?
If anyone here is going into the financial sector please fix this horrible mess of snake oil loan companies. They have no place but in the gutter.
Final advice: You’re better off working your ass off in college and not getting a loan for anything, unless you want to research it for months on end to be sure you’re not getting raked over the coals, then they can wind up selling it to a company that will… Your choice.