Boxed In, Borrowers Struggle to Repay Private Student Loans
"Many borrowers with student loans from commercial lenders (banks like Wells Fargo and companies like Sallie Mae and SoFi) find themselves in this situation: struggling with high monthly payments and few options to ease the burden," The Chronicle of Higher Education reports. "While federal student loans have more-flexible repayment options and safeguards to help prevent defaults, private student loans offer lower rates but have a hidden danger: They are easy to get but difficult to refinance. The inability to refinance or negotiate an alternative repayment plan is the top concern among borrowers of private student loans, according to the [Consumer Financial Protection Bureau's] annual report, which was released in October. ... Many students turn to private loans because those arrangements often carry lower rates than those of federal student loans, says Justin Draeger, president of the National Association of Financial Aid Administrators. The interest rate on federal loans is 'out of whack' with market rates because the 3.4-percent federal rate, which is set to double in July, was arbitrarily set, he says. For students who have good credit—or whose families have good credit—private loans may appear to be a better deal. The disparity in rates, Mr. Draeger says, overshadows the benefits of federal student loans and creates a confusing situation for families, since college financial-aid administrators counsel families to use often higher-rate federal loans as their first option. Additionally, private loans do not require the approval from an institution and do not have the same lifetime borrowing limits that most federal loans have. While a student must qualify and be approved by the college for a federal loan, the college might not know that a student has a private loan until it is disbursed, Mr. Draeger says."
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