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Beware of deceptive private loan offers

By   Gayle Gette
04/25/2017

An education beyond high school is an investment in your future. It can be expensive and often requires you or your family to take out loans to help pay for it. However, some student loans can be deceptive, and some companies offering these loans do not follow good business practices. Whether you’re taking out a new student loan or consolidating existing education loans, you will want to know how to spot potentially deceptive claims or business practices some private companies may use to get your loan business.

You have two options for student loans, federal loans and private loans.  Federal loans are overseen and regulated by the federal government, and include benefits and protections for borrowers. 

Private loans are offered by private lenders and tend to have higher fees and interest rates than federal government loans. Private loans also do not offer the opportunities for cancellation or loan forgiveness that are available on many with federal student loan programs.

The Federal Trade Commission (FTC), the nation’s consumer protection agency, and the U.S. Department of Education (ED), the agency that oversees federal student loans, offer these tips to help you recognize deceptive private student loan practices:

Some private lenders and their marketers use names, seals, logos, or other representations similar to those of government agencies to create the false or misleading impression that they are part of or affiliated with the federal government and its student loan programs. ED does not send advertisements or mailers, or otherwise solicit consumers to borrow money. If you receive a student loan solicitation, it is not from ED.

 Don’t let promotions or incentives like gift cards, credit cards, and sweepstakes prizes divert you from assessing whether the key terms of the loan are reasonable.

Don’t give out personal information on the phone, through the mail, or over the Internet unless you know with whom you are dealing. Private student lenders typically ask for your student account number — often your Social Security number (SSN) or Personal Identification Number (PIN) — saying they need it to help determine your eligibility. However, because scam artists who purport to be private student lenders can misuse this information, it is critical to provide it or other personal information only if you have confidence in the private student lender with whom you are dealing.

Check out the track record of particular private student lenders with your state Attorney General and your local consumer protection agency. 

Student loan consolidation is combining several loans into one with a new repayment term and interest rate. Here’s how to help identify potential problems related to loan consolidation:

Avoid lenders and marketers who use high-pressure sales tactics. Some marketers pitch that “your interest rates may go up if you do not consolidate immediately!”

Look at your loan documents to determine whether the interest rates are fixed or variable:
If all of your education loans have fixed interest rates, there may be no deadline to consolidate.
If some or all of your loans have variable interest rates, check the new variable rates the ED publishes for some federal loans each July 1st.

The annual rate changes can raise or lower the interest rate offered on a consolidated loan because the consolidation interest rate will be the weighted average of all loans consolidated.

Whether or not you have a targeted timeframe, take your time to determine whether consolidating is right for you.
Read the fine print in your loan documents to find these types of conditions:

Some lenders lower the interest rate on your consolidated loan, but only if you opt for automated payments from your checking account.

Other lenders discount the interest rate on your consolidated loan, but only if your loan has at least a specified minimum loan balance.

Still others agree to lower the interest rate on your consolidated loan, but only if you remain current on your payments for the life of the loan.

Some lenders sell consolidated loans to other companies. 

Benefits of consolidated loans — like promised discounts — may not transfer, and you may lose benefits if the lender sells your loan. Ask the lender whether the terms of your loan will change if it is sold.

Be cautious about consolidating federal loans and private loans into one private loan. You may lose all the benefits and protections provided in the federal loan programs.

Consolidating a Perkins loan may not be in your best interest. You may lose unique deferment and cancellation rights available to Perkins loan borrowers. For more information about these rights visit www.myeddebt.com/borrower.

Frequent consolidation after borrowing may impact timelines you need to meet to qualify for these benefits.

To learn more about federal student government loans, visit StudentAid.gov or the LRSC Financial Aid office, 701-662-1517.