Financial aid
In the midst of post-graduation life, many borrowers have to find ways to repay their student loans. But some relying on private banks have been confused and lost when it comes to staying on top of their debt.
Nearly 3,000 recent borrowers have filed complaints with the Consumer Financial Protection Bureau, claiming private lenders provide bad service, confusing terms and unforgiving repayment options, according to a report released by the agency last week.
“The private sector is trying so hard to make income on whatever loans they make,” said finance professor Elinda Kiss. “They may not be forgiving of the fact that some students don’t have jobs or don’t have high-paying jobs and therefore cannot afford to make the payments on their loans immediately upon graduation when they’re due.”
Unlike private loans, those issued by the Department of Education offer borrowers more options in deferring and postponing payments when they face financial hardship.
But Gina Cairney, a recent journalism graduate who took out both private and federal student loans, said she felt her private lender gave her clear terms of repayment and noted she hasn’t had any problems so far.
“I think my bank did a pretty good job when I applied for the loan,” Cairney said. “When I started getting closer to repayment, they sent me a letter two months in advance telling me, ‘Hey, your loans are going to go into repayment soon, this is what your estimated repayment will be.’”
Despite the many complaints the CFPB has received, Cairney said the private bank provides a more user-friendly online service for her to check up on her repayment status. For her federal loans, she has to navigate a more puzzling online process.
“The federal loans, they’re a little bit more confusing,” she said. “If I wanted to get access to a copy of my bill, I have to go through so many clicks before I can actually get to it, whereas [with] the private loan there’s a link right away.”
The CFPB report highlights the debate over which entity is more reliable for student loans: the federal government or the private sector.
On one hand, proponents of government loans say the long-term economic benefits of making it easier to pay for college outweigh the costs of issuing so many loans. But opponents argue the government is offering loans that are less likely to be repaid, and more money is being spent on loans than it can afford.
With a surge of college students, there is more demand for higher education, fueling a vicious cycle of tuition hikes and graduates buried in debt, opponents say.
“The only reason so much money is going to students is because the government is destroying the market,” said Michael Finger, principal at economic consulting firm Centinel Consulting. “If you look at any sector of the economy, the government isn’t helping as much — like computers or plastic surgery, costs come down.
“People aren’t trying to rope people into computers they can’t afford,” Finger added.
Despite criticism over the government’s expansive loan practices, Cairney said the rates are lower, and because of adjustments for income built into federal lending laws, she can more easily meet her repayment costs.
