Private Student Loans Archives - Page 5 of 5

The “Death and Bankruptcy Clause” In Private Student Loan Contracts

August 22, 2013 | Adam S. Minsky, Esq. Cosigners Private Student Loans

If you’re a follower of this blog, then you already know that I’m not a big fan of private student loans. They just stink. They tend to have higher interest rates and stricter repayment terms compared to their federal counterparts, and federal programs such as consolidation and Income-Based Repayment are not available. Private student loans often require a co-signer, something I’m also not a huge fan of because many people don’t realize that the co-signer is just as legally responsible for the loan as the borrower. Like federal student loans, private student loans typically cannot be discharged in bankruptcy (although it is not impossible).

Want to know my absolute least favorite thing about private student loans?

Yes! A Private Student Loan Refinancing Bill

July 2, 2013 | Adam S. Minsky, Esq. Loan Forgiveness Policy & Reform Private Student Loans

First, the bad news. Congress failed to pass a bill to stop interest rates on new federal Stafford loans from doubling. The deadline was July 1. Luckily, most of you won’t be impacted by this. Still, it’s disappointing, to say the least, as Congressional dysfunction and hyper-partisanship continue to rule our federal government.

However, there is also some encouraging news. As I’ve been blogging about recently, there have been a ton of new student loan reform proposals introduced into Congress. Some of them offerbroad, comprehensive reform of the entire system. Others are more targeted towards a particular problem, mostly the interest rate issue. They are coming from both political parties, which I think is great.

The latest reform bill comes from Ohio senator Sherrod Brown, and addresses private student loans. Of the $1 trillion dollars in total student loan debt in the United States, over $150 billion of it is private student loan debt. Private loans are terrible because they typically have inflexible terms and higher interest rates than federal loans, often even higher than the just-doubled interest rates of new federal Stafford loans. In fact, average private loan interest rates are 8-10%, which is, in a word, insane. They also have none of the benefits of federal student loans, such asIncome-Based Repayment, consolidation, and loan forgiveness. The Consumer Financial Protection Bureau recently found that private student loans are holding back the economic recovery.

Senator Brown’s bill, called the “Refinancing Education Funding to Invest for the Future Act,” grants the U.S. Treasury the authority to create a government-backed financing vehicle that would allow borrowers to refinance high-interest private student loans into new loans with much lower interest rates and more flexible terms.

This could be a huge benefit to borrowers. A private student loan with a balance of $20,000 and an interest rate of 10% can accumulate almost $7,000 in interest over three years. The borrower would have to make monthly payments of nearly $200.00 just to keep the balance at $20,000 (the balance would not even decrease). However, if that same loan had an interest rate of 3%, only about $2,000 of interest would accumulate over the same three-year time period. The borrower’s monthly payments of $200.00 would not only pay off this interest, but would reduce the principal balance to under $15,000 after three years. So this could be a huge help to borrowers with high-rate private student loans.

To read more about this bill, click here.

Got Private Student Loans? The Consumer Financial Protection Bureau Wants Your Input

March 20, 2013 | Adam S. Minsky, Esq. Policy & Reform Private Student Loans

The Consumer Financial Protection Bureau (CFPB) has been gathering information about problems with private student loans for quite some time. From this information, the CFPB put together a comprehensive report about the horrors of private student loans. I’ve also blogged about the problems with private student loans myself. In short, private student loans stink.

Now, the CFPB is seeking input on how we can solve one of the biggest problems with private student loans: repayment management. As you probably know, one of the main issues with these loans is inflexible repayment options. Programs such as Income-Based Repayment, loan consolidation, and loan forgiveness, which are offered for many federal student loans, generally do not exist for private student loans, and it can be difficult to postpone your payments during periods of economic hardship. Often, your only choice is to either pay your minimum monthly payment under the only repayment plan that is offered by your lender, or default. The CFPB is trying to gather information on what private student loan borrowers need to stay afloat, and how they can obtain things like loan modifications or repayment plan adjustments that can make loan repayment more manageable and affordable.

The CFPB wants YOUR input. To read more about what the CFPB is looking for and how you can contribute your thoughts, experiences, and ideas, click here. Submissions must be received by April 8, 2013, so don’t delay!

Senator Introduces Bill to Allow Private Student Loans to be Discharged in Bankruptcy

April 3, 2012 | Adam S. Minsky, Esq. Policy & Reform Private Student Loans

There’s some more good news coming out of Congress (if you can believe that). A few weeks ago, Congressman Hansen Clarke introduced the Student Loan Forgiveness Act of 2012 which, if passed, would help millions of student loan borrowers better manage their federal and private student loans. Now, Senator Richard Durbin (D-IL) has introduced a bill to reform the bankruptcy laws for student loan borrowers.

First, some background. Until fairly recently, student loans were very much like other forms of consumer debt (such as credit card debt, auto loans, medical bills, etc) in that they could be discharged through the bankruptcy process. Then, in 2005, Congress and President Bush passed a law that completely changed how bankruptcy laws are applied to student loans. This law made it exceedingly difficult to discharge student debt through bankruptcy, outside of exceptional circumstances. The practical impact of this legal change is that if you can’t pay them off, your student loans (particularly private student loans) may haunt you forever. The 2005 law arguably made student loans (which are supposed to be “good” debt, an “investment” in your future) the worst type of debt you can have.

Senator Durbin’s bill, if passed, could change that. It would restore bankruptcy protections for private student loans (although federal student loans would remain without bankruptcy protections). This would allow borrowers to use the bankruptcy process to discharge private student loans. Of course, like any other legislation right now, it’s anyone’s guess whether such a law could pass in our hyper-political gridlocked Congress.

To read more about the bill, click here.

How Private Student Loan Lenders Penalize The Unemployed

January 31, 2012 | Adam S. Minsky, Esq. Private Student Loans

If you’ve read my previous article on deferment and forbearance, then you’ll know that if you find yourself in difficult financial circumstances, there are options to deal with your student loans. Unfortunately, those options differ enormously depending on whether your student loans are federal or private.

For federal student loans, you’ve got a lot of flexibility. You may be able to defer your loans if you are unemployed and receiving unemployment benefits. Deferment is great because it allows you to postpone your payments, and interest that accrues is not added back to the principal until the deferment period ends. You just have to fill out a simple deferment application and, if you qualify, you’re approved. There are generally three years of economic hardship deferment available for federal student loan borrowers.

Economic hardship forbearance is another option for federal student loan borrowers. You don’t need to be receiving unemployment benefits to qualify, so it often is a good option for recent graduates who haven’t landed a full-time job. The biggest downside to forbearance is that, unlike deferment, interest is added back to the principal during the forbearance period. That means that your loan balance can grow more quickly the longer you remain in forbearance. However, forbearance is easy to obtain (no application required) and, like deferment, you have up to three years available.

Private student loans are a whole other ballgame. Private student loans in general have much more limited flexibility than federal student loans. Deferment is rarely an option, and forbearance is quite limited. If forbearance is available, your loan balance can rapidly balloon because private student loan interest rates tend to be higher than those of federal student loans.

To make matters worse, private lenders often take advantage of borrowers in untenable situations by forcing them to jump through hoops and pay fees. For example, many private lenders will require borrowers to complete complicated financial hardship applications showing all sources of income and all expenses, in order to determine “eligibility” for forbearance. This is, of course, a tedious exercise for an individual juggling several low-paying jobs or trying to find employment. Some private lenders will make borrowers re-apply for forbearance every few months, thus forcing borrowers to go through this process over and over again while they are dealing with the burdens of unemployment or under-employment.

On top of that, private lenders may even charge forbearance “fees.” To even begin the tedious forbearance application process, a borrower in financial distress may have to pay flat fees ($50, $100, sometimes more), money that does not go towards the loan in question but goes right into the pocket of the commercial lender. These borrowers are thus hit twice financially: first for the forbearance fee, and then for the interest that accumulates during the forbearance period.

Unfortunately, there’s just not a whole lot that can be done about this. Private lenders have a lot of power, and there is inadequate government regulation. To read more about how some are fighting back on this, check out this article.

State Student Loans: The Worst Kind of Student Loan?

January 17, 2012 | Adam S. Minsky, Esq. Private Student Loans

Most student loans fall into two categories: federal student loans and private student loans. Federal student loans have unique rights and benefits. Private student loans are generally more problematic and are much more inflexible when borrowers have trouble making their payments.

Defaulting on your federal student loans is dangerous because the federal government can garnish your wages, seize certain federal benefits, and intercept your tax refunds, all without a court order. In some ways, this makes federal student loan defaults more dangerous than private student loan defaults, since private lenders need to take you to court first in order to forcibly collect from you. The flip side, however, is that there are usually clear ways of bringing federal student loans out of default: either through a special repayment program called “rehabilitation,” or consolidation. While private student lenders do not have the same collection powers as the federal government, rehabilitation and consolidation exist only for federal student loans; they not options for bringing private student loans out of default. (For more on default, check out my previous article on the subject.)

State-based student loans are, in my opinion, a monstrous hybrid of federal and private student loans. These loans are usually originated by a quasi-public state agency or a state-supported non-profit organization. Thus they are often very attractive to students who are seeking to avoid the big, bad banks and commercial lenders. Moreover, these loans often have somewhat more favorable terms than purely private student loans, such as lower interest rates, longer repayment terms, or more flexible forbearance options.

If you ever default on a state-based student loan, however, you’re in trouble. Many state-based lenders retain some of the scary collections powers that the federal government does: without a court order, the state can seize state benefits, intercept state tax refunds, and in some cases, garnish your wages. To make matters worse, because state-based student loans are not federal student loans, they are ineligible for federal rehabilitation or consolidation programs to bring the loans out of default. This means that, much like a defaulted private student loan, you’re effectively stuck with it, and there’s not a whole lot you can do unless you can reach a settlement agreement.

My advice? Avoid state-based student loans.

Consumer Financial Protection Bureau Is Seeking Personal Stories About Private Student Loans

November 21, 2011 | Adam S. Minsky, Esq. Policy & Reform Private Student Loans

The Consumer Financial Protection Bureau (CFPB) is a new federal government agency with a mission to provide better oversight and stronger regulation of the financial industry. CFPB has put out a call for personal stories aboutprivate student loans. As you may know, private student loans are exceptionally risky and problematic for millions of student loan borrowers: they often have higher interest rates, little flexibility, and can’t be discharged in bankruptcy, meaning student borrowers could be stuck with them forever.

We’ve got less than 60 days to tell CFPB about all the problems associated with private student loans. If you have a personal story that you’d like to share, please visit CFPB’s private student loan portal and tell them your story. Let’s fill their inbox and hopefully, we can make some real change.

The Problem With Private Student Loans

June 20, 2011 | Adam S. Minsky, Esq. Private Student Loans

If you’ve been following this blog, you’ve probably seen at least some relatively good news about federal student loans. You can consolidate. You can get a payment plan that caps your payments at a percentage of your income. You can get some of your loans forgiven or cancelled if you work in certain professions. You can postpone your payments if you become unemployed or have difficulty paying your bills.

Unfortunately, private student loans are a whole different ballgame.