Student Loans: New Legislation Would Require Colleges To Notify ...

It wasn?t an earth-shattering proposal, but legislation offered last month by two Democratic senators could save the finances of tens of thousands of college students who would otherwise ignorantly sign up for private student loans which generally are more expensive and less flexible than federal loans.

U.S. Senators Dick Durbin (D-IL) and Tom Harkin (D-IA) introduced a bill that would require colleges to counsel students before they sign up for private student loan debt.

The two claim that colleges frequently pressure students to get the private loans which are more plentiful than the federal loans. Not only can private loans? end up being as high as 18 percent ? compared to 6.8 percent for the federal loan rate ? they also cannot be excused in bankruptcy. Private bank loans may start with lower teaser rates, but most will end up being much higher than the federal rate.

Banks can attach your wages and even go after your Social Security checks if you are collecting and still owe money.

But most students sign up for the private loans, the senators said, without even knowing about the availability of the federal loans.

?There is no doubt that federal loans are a better deal for American students and families,? Durbin said in a prepared statement.? ?However, with many for-profit colleges pressuring students into private student loans, many students and their families are not informed of the difference.? Private student loans with higher interest rates, less flexibility and few consumer protections can burden students from graduation to the grave, ruining their credit and stopping them from borrowing for a home.? The Know Before You Owe Act which I am introducing today with Chairman Harkin would empower students and their families to exhaust their federal financial aid options, which are designed to be more reasonable before being forced into private loans.?

?With student loan debt at a record level, we must empower students to make informed decisions about how they finance their education, especially when it comes to the risks of private loans, which can sink students into financial quicksand and are not dischargeable in bankruptcy,? said Harkin.

?This bill will help lower default rates and curb unnecessary debt by educating students about their federal financial aid options before they turn to private student loans.? As we continue to work to improve college affordability and address the student debt that burdens America?s middle class families, we must start by ensuring that students exhaust their federal aid options.?

Student loan debt is estimated to be about one trillion dollars and most of that is to private banks.

Consumer Reports fully agree that private college loans are terrible.

?If you must borrow, avoid using private loans except as a last resort, even though their interest rates may be lower than federal loans now. That?s because federal loans issued after July 2006 have a fixed rate of 6.8 percent, while most private loans have variable rates often tied to the London Interbank Offered Rate (LIBOR). Home-equity loans, which may be cheaper now, are also riskier because they can cost you your home if you default,? says Consumer Reports.

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