Safety Regulations in the Works for Private Loans
Posted 06 Sep, 2010
Long time readers will be familiar with my typical warnings about private student loans. When it comes to consumer advantages and competitive interest rates, they simply can’t compete with their federal counterparts. Yet private lenders have been so successful with their marketing campaigns that almost 2/3 of students who borrowed private loans in 2007-08 did so without using up all their federal loan options first!
As more and more federal attention is turned toward the student loan problem, private loan regulations have popped up in several current bills. If they pass, they could make borrowing from a private lender much safer than it has ever been.
Bringing Home a Watchdog
One of the key inclusions of the new financial regulation bill is the creation of a watchdog group, created entirely to uphold consumer protection policies. This entity would be the key group to watch over the private student loan industry, and would be a single hub for consumers to turn to when they had a complaint about one of the lenders or their policies.
Numerous complaints about the industry–or a particular lender–will be more likely to be noticed if this single group is created and given the power to take action when necessary as it focuses its attention on private lending.
College Integration
As it stands now, students can borrow private student loans without any interaction with their colleges. This means, if they qualify, students can take out as large a loan as they are offered–whether or not they intend to use it to pay for college costs.
A proposed regulation would require lenders to certify all loans through the student’s college before disbursing funds. This would:
- Prevent fraud by ensuring that the student is in fact attending the school,
- Limit the amount of money private lenders could offer to students, and
- Lower potential student debt by ensuring that students don’t borrow more money than they need to meet the cost of attendance.
Education About Federal Loans
Another highlight of the private loan regulations is a stipulation that would allow college financial aid counselors to encourage students (as I have encouraged my client families) to borrow federal loans before turning to private ones.
This new opportunity, combined with the certification rule I’ve just described, would allow schools to educate students who planned to borrow private loans about the advantages of using federal loans first.
Changing Bankruptcy Rules
One of the most daunting realities about student loans–both federal and private–is that they are nearly impossible to discharge, even in bankruptcy. New House and Senate bills have both suggested providing relief for borrowers in this situation, and would allow certain types of private loans to be discharged as part of a bankruptcy settlement. Federal loans, however, would still fall under the current rules.
All the best,
Deborah Fox
Deborah Fox is the founder of Fox College Funding®, a nationwide company that helps families find creative ways to reduce their college costs.
Subscribe in a reader
Subscribe by Email
Related Posts
Long time readers will be familiar with my typical warnings about private student loans. When it comes to consumer advantages and competitive interest rates, they simply can’t compete with their federal counterparts. Yet private lenders have been so successful with their marketing campaigns that almost 2/3 of students who borrowed private loans in 2007-08 did so without using up all their federal loan options first!
As more and more federal attention is turned toward the student loan problem, private loan regulations have popped up in several current bills. If they pass, they could make borrowing from a private lender much safer than it has ever been.
Bringing Home a Watchdog
One of the key inclusions of the new financial regulation bill is the creation of a watchdog group, created entirely to uphold consumer protection policies. This entity would be the key group to watch over the private student loan industry, and would be a single hub for consumers to turn to when they had a complaint about one of the lenders or their policies.
Numerous complaints about the industry–or a particular lender–will be more likely to be noticed if this single group is created and given the power to take action when necessary as it focuses its attention on private lending.
College Integration
As it stands now, students can borrow private student loans without any interaction with their colleges. This means, if they qualify, students can take out as large a loan as they are offered–whether or not they intend to use it to pay for college costs.
A proposed regulation would require lenders to certify all loans through the student’s college before disbursing funds. This would:
- Prevent fraud by ensuring that the student is in fact attending the school,
- Limit the amount of money private lenders could offer to students, and
- Lower potential student debt by ensuring that students don’t borrow more money than they need to meet the cost of attendance.
Education About Federal Loans
Another highlight of the private loan regulations is a stipulation that would allow college financial aid counselors to encourage students (as I have encouraged my client families) to borrow federal loans before turning to private ones.
This new opportunity, combined with the certification rule I’ve just described, would allow schools to educate students who planned to borrow private loans about the advantages of using federal loans first.
Changing Bankruptcy Rules
One of the most daunting realities about student loans–both federal and private–is that they are nearly impossible to discharge, even in bankruptcy. New House and Senate bills have both suggested providing relief for borrowers in this situation, and would allow certain types of private loans to be discharged as part of a bankruptcy settlement. Federal loans, however, would still fall under the current rules.
All the best,
Deborah Fox
Deborah Fox is the founder of Fox College Funding®, a nationwide company that helps families find creative ways to reduce their college costs.
Subscribe in a reader
Subscribe by Email
Leave a Reply