Student Loan Management: What About Private Loans?

Much of what has been written about dealing with student loans have to do with spending, support, and administration by the federal government or in some cases a government agency. And regulations and programs that can be applied to federal loans are generally not available to private lenders.

Federal student loan debt

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Federal student loan debt is estimated at up to $ 1 trillion. At the end of 2011, the total outstanding student loan debt was estimated at $ 165 billion.

This can be an understatement as there is no central repository for private student loan information.

Private student loans are a growing market, primarily used by students with higher debt needs, such as students with little or no family contribution, students at private universities and those seeking graduate and professional degrees.

The Department of Education has no role in regulating lending to private students. These loans are issued by banks and other financial institutions and in some cases not-for-profit agencies. They set their terms.

Although private student loans are not regulated by the Department of Education, private lenders must still comply with other federal and state laws that apply to lending in general.

For example, loans cannot exceed interest rates set by state law. In addition, federal law also requires certain disclosure requirements for private student loans that are designed to ensure that borrowers understand the costs and conditions.

These disclosures are made during the loan application phase, the approval phase and the loan disbursement phase. These disclosures include information on late payment rates, fees and costs, repayment terms and eligibility requirements for schooling, as well as the availability of student alternatives.

Borrowers are also required to complete a “self-report form” explaining that cheaper federal loans are available to the student.

When preparing to manage your private student loans, it is important to understand what you can expect and what a private lender can offer you. Here are some facts and general guidelines for dealing with private lenders:

When considering a private student loan. . .

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  • Interest rates for private student loans tend to be higher than for federal support loans.
  • Some lenders may offer reduced interest rates or extended payments.
  • Many private lenders require you to provide a co-signer who will be equally responsible for the loan if you cannot or do not make the payments.
  • Most private lenders require you and your vice president to be creditworthy, have a certain credit score, paycheck or debt-to-income ratio.
  • Many private lenders charge application, origination or payment fees.
  • Some private lenders offer repayment periods of up to 20 years, depending on the amount financed.

When you have trouble making private payments for students. . .

  • To change your payment or payment terms, you must negotiate directly with the lender. Many lenders offer some type of consolidation for private student loans or will refinance private student loans.
  • Some private lenders offer programs to defer payments during periods of unemployment or illness.
  • Private study loans cannot be consolidated with federal student loans in a federal consolidation program such as direct loan consolidation.
  • Private student loans are not eligible for federal repayment solutions 
  • Some lenders may offer to consolidate your federal student loans into a private consolidation loan. If you choose this route, your federal student loans will be paid off and federal consolidation will no longer be available. Ever.
  • Rehabilitation options for unpaid private loans are at the discretion of the lender.
  • Private lenders are subject to the standards set out in the Federal Debt Collection Practices Act, which governs the relationship between borrowers and third-party collection agencies and the standards required by the Fair Credit Reporting Act. You have rights if the collector engages in dishonest practices or harasses you for payment or if the collector, servicer or loan holder incorrectly reports your payment history to credit bureaus.

Bankruptcy Private Student Loans. . .

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  • Private student loans are subject to the same standard for bankruptcy dismissals as student loans from the Federation.
  • Some private student loans can be discharged in bankruptcy if they are made in excess of the amount needed to cover the regular cost of college.
  • Private student loans can be managed through Chapter 13 repayment plans.
  • Unlike federal student loans, which do not have a statute of limitations on collection, private student loans are subject to the statute of limitations, which is set – usually – by the borrower’s residency.

For much more information on student loan management during difficult financial times, see our articles on the following issues:

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