Avoid these College Loans like the Plague
College is expensive—we get it, but college can be far more expensive than it should be if you get involved with the wrong college loans.
When was the last time you went to what is likely the part of town that doesn’t appear on any tourist postcards and got a payday loan? You know, these are the types of loans that essentially give you an advance on your salary and charge you crazy amounts of fees and interest in the process.
Your answer is likely never. Although there is no shame in needing a loan to get by, most people avoid these places because of the amount of money that you end up paying in the end.
Did you know that the student loan market has its own version of these lenders? To be fair, comparing most of these student loans to a payday loan is unfair but the outcome could be very similar. You may end up paying more for these loans than you should have.
There are two main types of student loans:
Federal loans, which are backed by the federal government, and private loans, backed by banks, or other lending institutions. By far, the best kind of student loan is a federal loan.
And Private loans, which should be avoided – not because the lenders are necessarily shady businesses but because private loans don’t come with the same Federal subsidies and programs.
Did you hear about the recent program where students could consolidate their student loans and pay only a small percent of their current income as their monthly payment? For some recent graduates, this represented a large reduction in their payment amount but if you have private loans, that program doesn’t apply to you. Any future legislation designed to ease the student loan burden won’t apply to private loans, most likely.
For those who have to turn to private loans, the Federal Trade Commission wants you to know that some lenders should be avoided. Any company that sends out advertisements, flyers, e-mails, or other solicitations designed to fool you in to thinking these are government programs are trying to gain your business based on deception. Don’t take the bait!
Gift cards, prizes, and other swag isn’t a reason to sign up for a student loan. Just like a credit card, automobile, and any other loan, get some quotes, compare the terms, and make your decision based on the facts. If they came to you asking for your business, it’s probably worth looking elsewhere.
Finally, do some research on the company. The FTC advises consumers to, “Check out the track record of particular private student lenders with your state Attorney General, your local consumer protection agency, and the Better Business Bureau.”
If you have to get a college loan, stick with Federal loans as much as possible, and when somebody is using high-pressure sales tactics to get you to consolidate, or originate a student loan with them, avoid them like the plague. The most reputable loan institutions often let you come to them.