Mailbag: Private Loans

In recent years, undergraduates have become increasingly reliant on expensive private student loans, which unlike federal loans, have uncapped interest rates that vary month to month based on market conditions. They also offer less flexible repayment options and protections than do government-backed loans.

In writing about private loans over the last year and a half, we at Higher Ed Watch have called on Congress to revisit the infamous 2005 bankruptcy bill, and allow borrowers who have taken on unmanageable levels of debt to be able to discharge their private loans through bankrupcy in the same manner in which they can discharge credit card debt. We have exposed and warned against the lack of information often provided to potential borrowers and predatory tactics used by private student loan providers. We have emphasized that students should always exhaust their eligibility for federal aid before resorting to high-cost private loans.

Many of our readers have responded by telling us about their personal experiences with private loans. Some have sharing heart wrenching stories about the difficulty of dealing with indebtedness and the seemingly inescapable burden these loans have had on their lives. Here are a few examples:

“Naive and young, I signed on the dotted line with no clue that I was selling my soul. My loans have more than doubled since graduating 12 years ago. I have suffered severe depression, anxiety and lost out on job opportunities and even a place to live because of my student loan status. All I wanted was an education and my “education” has done nothing for me. I can’t even get my transcripts. Something needs to be done about this.” (My cross to bear, September 21, 2007)

“I have over $100,000 in private student loans and I cannot afford to pay them. I WANT to pay, but they keep telling me my only option is to pay the minimum payment or else I will default. I work for the Department of Public Welfare making less than $35,000. Many of the people coming in this office have more money than me!!! My net monthly income is $1800 and my loan payments are $1500!!!! ” (Call Senators to support S.1561!!, July 10, 2007)

“Misleadingly [my husband] was charged over $50,000 dollars in 2 years and Sallie Mae cut him off from more “private loans” to finish his bachelor’s degree. So now he is in debt, still disabled due to failed medical procedures, and without a degree that would make him eligible for any job in IT. I have a salaried job that takes care of our house, utilities, gas for car, and very little food. His disability check goes to medical bills and medicine. Sallie Mae makes him pay $150.00 just to put his loans on forbearance! That is absolutely ridiculous- “oh yes sir we understand that you dont have any money but we want you to pay us money just to approve a piece of paper”! Sure yeah I have tons of money to toss at them!” (Bottomless Pit, July 30,2007)

Other readers, many of them loan company employees and financial aid administrators, had tough questions for students and families who made the decision to take on a debt load that was too big for them to effectively manage:

“Just so I understand, you chose to borrow $100,000 and then chose to work for low pay, and now you want to file for bankruptcy so that me and other taxpayers to bail you out?” (Question for Alyssa, July 16, 2007)

“The reason private loans aren’t dischargeable in bankruptcy is to encourage folks to not do exactly what you’d like to do…..run-up a large bill and then default… Hand-outs don’t encourage responsible borrowing. A little pain in life helps us to grow and become more responsible adults.” (To Alyssa, July 25, 2007)

“Why did you have your son attend an expensive private college vs a state school? Why would you go into so much debt if a simple “life crisis” would be able to turn your finances upside-down? Why would you stake this entire debt on your son getting a job? It’s been 7 years since this happened, why isn’t he working and paying off the loan by now? If you didn’t understand the loans, why didn’t you do more research about different lending options, or the structure/terms of the loan you got?” (Re; Barbara, March 29, 2007)

But many borrowers who wrote in say they are doing their best to repay the loans but have found the loan companies inflexible and unwilling to help them find ways to make repayment easier:

“No one is asking for a freebie. What is being asked for is relief from predatory lending and mistruths by the private loan industry so these people can dig themselves out of debt. Most people WANT to pay their loans, especially if they want to have their dreams fulfilled of purchasing a home,a car, or sending their own children to college.. You can’t rehabilitate a private loan and get back into a life of prosperity and financial responsibility when a private lender will not offer you the opportunities to do so, and perhaps even adds 25 percent in fees if you go into to default due to unforeseen circumstances.” (Ideological, July 30, 2007)

“I have multiple private loans through Sallie Mae which I can’t consolidate, each with 9-10% variable interest. Right now I owe $54,000 (over $8000 in just interest already) but the best repayment plan offered to me will have me paying over $100,000 over 15 yrs. (that will grow with rising interest rates). If I want to pay over 25 years with a slightly lower payment, I’ll in total pay around $150,000… I don’t want to declare bankrupcy, I just want a chance to pay this off without defaulting. I want a home and I don’t know how I’ll be able to do this.” (I feel overwhelmed, October 26, 2007)

Some readers have humbly admitted the mistakes they made in financing their educations and now offer advice to future loan seekers:

“You can say that it’s my own fault, I should have done my homework, but I trusted my school and the financial aid director and maybe I should have known better, but one mistake will follow me around for the rest of my life. So whatever you do stay away from private loans — they are NEVER the answer no matter what your school tells you.” (Private loans, August 25, 2007)

We appreciate all the comments we have received on private loans and other items. Please keep them coming. Sometimes, we respond publicly; sometimes not. Regardless, others do. We publish nearly every comment, including those critical of us, without editorial change beyond legal considerations and aim to make sure the most trenchant comments are read widely. We’ll continue to do so in the future.