A private student loan is a financing option for higher education in the United States that may complement, but not replace, federal loans, such as Stafford loans, Perkins loans and PLUS loans. Personal loans, which are highly advertised, do not have the patience and delay options available with federal loans (which are never advertised). Unlike federal subsidized loans, interest increases when a student is in college, although payment may not begin until after graduation. While unsubsidized federal loans have interest costs when students are studying, private lending rates are often higher, sometimes much higher. Fees vary widely, and legal cases have reported a collection fee of 50% of the loan amount. Since 2011, most private student loans are offered at zero cost, effectively rolling costs into interest rates.
Interest rates and loan terms are set by the financial institution that guarantees the loan, usually based on the perceived risk that the borrower may be in arrears or a default of the loan. Most lenders charge interest rates based on 4-6 levels of credit score. Underwriting decisions are complicated by the fact that students often do not have a credit history that will demonstrate creditworthiness. As a result, interest rates may vary among lenders, and some loans have variable interest rates. Over 90% of private student loans for undergraduate students and over 75% of private student loans to graduate students require a credit worthy cosigner.
Unlike other consumer loans, Congress makes student loans, both federal and private, exempt from exemption (cancellation) in the event of a personal bankruptcy, except when repaying a student loan will represent undue difficulties to the borrower and borrower. This is a serious limitation rarely appreciated by students when obtaining student loans.
Financial assistance, including loans, should not exceed the cost of attendance.
Video Private student loan (United States)
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Increased use of private student loans occurred around 2001 after an increase in tuition fees began to outpace the increase in the number of federal student assistance available.
Recent student loan history has been compared to the history of the mortgage industry. Similar to the way in which mortgages are securitized and sold by lenders to investors, student loans are also sold to investors, thus eliminating the risk of harm to the actual lender.
Another parallel between the student loan industry and the mortgage industry is the fact that subprime loans have been rampant for the last few years. Just as little documentation is required to take subprime mortgage loans, it is even less necessary to take subprime or "non-traditional" student loans.
Maps Private student loan (United States)
Criticism
After the passage of the bankruptcy reform bill of 2005, even private student loans did not run out during bankruptcy. It provides loans without credit risk to lenders, averaging 7 percent per year.
In 2007, New York Attorney General Andrew Cuomo led an investigation into the practice of lending and anti-competitive relationships between student and university lenders. In particular, many universities are directing student borrowers to the "preferred lender" which results in borrowers issuing higher interest rates. Some of these "preferred lenders" allegedly rewarded the university's financial assistance staff with "bribes." This has led to changes in lending policies at many major universities in America. Many universities have also returned millions of dollars in return costs to affected borrowers.
The biggest lenders, Sallie Mae and Nelnet, were criticized by borrowers. They often find themselves involved in the most serious lawsuits filed in 2007. Claims False claims filed on behalf of the federal government by former Research Department researchers, Dr. Jon Oberg, against Sallie Mae, Nelnet, and others. lender. Oberg argues that lenders are weighing on the US Government and diluting millions of dollars in taxpayers. In August 2010, Nelnet completed the lawsuit and paid $ 55 million.
Prior to 2009, most private student loans did not offer the release of death and disability. After the Boston Globe published an article criticizing Sallie Mae's failure to free private student loans from Marines killed in action, Sallie Mae launched a new student loan program with deaths and disabilities similar to those available on federal student loans. Since then, about half of private student loans offer death and disability disabilities.
In 2011, The New York Times published an editorial supporting the return of bankruptcy protection for private student loans in response to the economic downturn and universal tuition increases across all colleges and graduate institutions.
A 2014 report from the Consumer Financial Protection Bureau (CFPB), indicates an increasing problem with this type of loan. The borrower faces "auto-default" when the cosigner dies or goes bankrupt. The report indicates that some lenders demanded full payment immediately upon the death or bankruptcy of their loan cosigner, even when the loan is current and paid on time.
Participants
The largest student lender, Sallie Mae, was once a government-sponsored entity, who became a private between 1997-2004. A number of financial institutions offer private student loans, including banks such as Wells Fargo, and specialized companies. Student loan searches and comparison websites allow visitors to evaluate loan terms from various partner lenders, and the university's financial assistance office usually has a list of preferred vendors, but the borrowers are free to get loans wherever they can find the most profitable terms.
When the economy collapsed in 2008-2011, many players withdrew from private world student loan loans. The remaining lenders are tightening credit criteria, making it more difficult to accept loans. Most now require a credit worthy cosigner. Following the economic collapse of 2008, a number of inter-group loans and alternative lending platforms emerged to help students find private student loans. For example, the US online market lending platform, LendKey allows consumers to order loans directly from community lenders such as credit unions and community banks.
References
External reference
- "Many Private Student Loan Traps," New York Times, September 4, 2015
Source of the article : Wikipedia
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