People who use private student loans tend to have more debt, and many of them could have taken out cheaper and less complicated federal loans.
The Consumer Financial Protection Bureau started accepting student loan complaints in March 2012. Since then, it has received more than 4,000 complaints about private student loans. The agency says that number is unexpectedly high, and recently summarized them in a report.
Analysis of that report by the U.S. PIRG Education Fund shows it’s obvious some borrowers might as well have paid for college with plastic.
“Choosing to pay for college through a private student loan is no better than paying for it on a credit card,” PIRG says. While only 7 percent of student loans are private, they’re “generally more expensive and risky for consumers [than federal loans], and dealing with private student lenders can be a tremendous hassle.”
Many private student loan borrowers may not have needed them, either. “In 2008, a majority of PSL borrowers took out less in federal student loans than they could have. Of these borrowers, a full quarter took out no federal student aid whatsoever,” PIRG says. Borrowers “fell prey to a range of unsavory marketing tactics,” including the suggestion that private loans were better than federal ones. They’re not, at least for consumers.
Those who have used private loans still have disproportionately higher debt, the PIRG report says. About 80 percent of borrowers who graduated around the start of the financial crisis and have more than $40,000 in student loan debt used private loans. Repayment issues were the source of two-thirds of the complaints to the CFPB.
The CFPB report found that 10 U.S. firms account for more than 90 percent of the complaints. The top five were Sallie Mae, AES/PHEAA, Wells Fargo, Citibank, and JPMorgan Chase.
“The total number of complaints received was higher than expected, and it appears that many loans originated prior to 2008 continue to show signs of stress,” CFPB student loan ombudsman Rohit Chopra wrote in the report.
Have you used private student loans? Do you agree they’re no better than a credit card? Comment below or on our Facebook page.