By Syd Bickers
As of last week the White House is planning to plan to protect college students like us from the unforgiving interest rates of big bank student loans.
The current administration has been on a four-year crusade to make higher education more affordable, and this is yet another battle.
The White House released a statement on Feb. 21 stating that the Consumer Financial Protection Bureau (CFPB) was taking the first in a study to determine how private student loans affect people like us. The CFPB also hopes to find an easier way payback option.
In July of 2012 the bureau conducted a study that found over $8 billion of private student loan debt in the United States was unplayable by loan holders.
It is my guess that many Milligan students who hold student loans have federal Stafford loans, which are merit-based loans sanctioned by the government. These loans have an interest rate of 3.4 percent for subsidized Stafford loans and 6.8 percent for unsubsidized Stafford loans. If you have a subsidized loan the federal government pays the interest while you hit the books. Weird, I know. If you have an economics major for a friend, rack their brain with questions about that.
These federal loans are ones students sign for each year and hope they can pay off in six months after they graduate or drop credit hours below a half-time student load. Students can opt to begin payment during school, but they do not have to.
Private loans are a bit different. They come from banks or credit unions, and do not offer as much protection. Interest rates may be lower on a private loan, however. But even stronger – however – is that these rates are not always locked, meaning they could change as payments are made.
Every article or column I read on this topic strongly suggested that private loans be a student’s last resort.
Take this line from a USA Today column by Sandra Block published in 2011: “… while some private loan rates look appealing, you should never sign up for one until you’ve maxed out on federal student loans. And even then, you should scrutinize the terms of the loan contract before you borrow.”
Unfixed interest rates are not the only drawback of private student loans. There is no grace with defaults (when a loan goes unpaid for nine months). Defaults result in phone calls from collecting agencies, stomachaches, and bad credit scores. Try taking out a mortgage for your first house or a loan for a new car after that!
No can do.
Let’s see if the CFPB makes any headway with their new plan.
Reporter Syd Bickers is working on a student specifically about the debt of current Milligan College graduate students and alumni. If you have any comments about how you plan to payoff, are paying off or have paid off your student loans, leave a comment here, or send one to thestampede@milligan.edu.
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