Student Loans
What is a student loan?
A student loan is borrowed money to help pay for higher education. Due to limited availability of grants and scholarships, loans help many in the United states obtain a college degree. In the past, these loans were almost always offered by state or federal governments. Government student loans have limits on the amount of interest that lenders can charge. These loans also include other important protections for borrowers. On the other hand, the government is able to use very aggressive collection tactics, such as seizing portions of Social Security benefits that private creditors are not legally allowed to seize.
Not all student loans are offered by state or federal governments. There is also a growing private student loan market. Unlike government loans, there are fewer controls on the cost and pricing of these private student loans.
Overall, the levels of borrowing among students and their families are rising at alarming rates. By the time they graduate, nearly two-thirds of students at four-year colleges and universities have student loan debt. In 1993, in contrast, less than one-half of four-year graduates had student loans.
What are the main concerns about student loans?
1. Government Loans
- Students do not have to pass credit checks to get student loans. This is generally a good thing because many students are young and have not yet had the opportunity to establish credit. However, many borrowers are unsophisticated and end up borrowing more than they can ultimately afford on the assumption that higher education will lead to financial rewards.
- Student loans are very hard to get rid of. There is no time limit on the government’s right to collect student loans. The government can come after borrowers in a variety of ways, including tax refund seizures, administrative wage garnishment, and Social Security benefit offsets.
- Student loans are extremely difficult to discharge in bankruptcy. Borrowers must show “undue hardship” in order to discharge these debts.
- Defaulted student loans may prevent borrowers from getting certain professional licenses.
- Borrowers may fall victim to unscrupulous trade schools whose primary mission is to make profits, not educate students. These borrowers may end up leaving school with nothing but shattered dreams and debt.
- Student loan borrowers have extensive rights, but they generally lack information about flexible repayment, cancellation, and other rights.
2. Private Student Loans
- Private student loans may include abusive terms such as high interest rates and high up-front fees. Borrowers may be confused about whether they are taking out a government loan or a private loan since many companies offer both.
- Borrowers may be pushed into taking out private loans even when they are eligible for more affordable government loans.
- Your lender might sell your loan to another lender without informing you, making it difficult to make payments to the right place. (Government loans are not bought by private agencies, although private collection agencies collect these loans on behalf of the government.)
What can you do if you have a student loan problem?
AFFIL can’t guarantee that help is on its way, but these are our best suggestions:
- Visit Student Loan Borrower Assistance, a project of the National Consumer Law Center. The site provides resources for people who already have student loans and want to know more about their options and rights.
- File a complaint. If you have a government student loan and you have problems with the loan or the loan collector, you may file a complaint with the federal Department of Education at http://www.ed.gov, or your state guaranty agency.
- There is a student loan ombudsman’s office in the Department of Education who helps resolve problems. The FSA Ombudsman web site provides the process and the resources to assist you in resolving problems with your student loan. You can reach the Ombudsman toll free at 877.557.2575 or by email at fsaombudsmanoffice@ed.gov.
- Check out the information offered by the Department of Education. The Department publishes a Student Aid Guide.
- Find a lawyer: AFFIL is not a lawyer referral service and cannot refer you to a specific lawyer. If you want to talk with a lawyer who might help you with your debt problems, you can review the list of members of the National Association of Consumer Advocates (NACA). You can also contact your state bar association’s lawyer referral service.
