Private Student Loans for Life?
The long term benefits of a college education could be
worth the extra cost of a private student loan, but if
student borrowers are unable to find well-paying jobs
after college, they could run into serious
financial
trouble. Borrowers who are unemployed or suffering from
economic hardships are allowed to defer payments on
their federal loans for up to three years.
Private student loan lenders aren't required to offer
hardship deferments, however, though some do so
voluntarily. A change in bankruptcy laws that took
effect last year also make it almost impossible for
borrowers who file for Chapter 7 bankruptcy to remove
private student loans from their debt. Under the new
bankruptcy law, borrowers with private loans must show
excessive hardship, the same strict standard that
applies to federal loans.
Borrowers must convince the court that they'll never
earn enough money to repay the
private loan. This is an
almost unattainable standard unless the borrower is
permanently disabled.
Many private lenders say this additional protection is
needed for private student loan lenders because it's
basically a loan being made to borrowers with no income,
no near-term job prospects and no collateral.
Consumer groups argue that providers of private
student
loans don't need special bankruptcy protection because
there are no limits on the fees or interest rates they
can charge borrowers. Because private loans lack the
special protections included in federal student loans,
some student borrowers could spend the rest of their
lives paying off high-interest student loans.
It’s believed that these student borrowers won't get
stuck because college always works out financially, but
that’s not always true. Many students have trouble
finding jobs after college. In these cases student loan
consolidation could help these students lock into lower
interest rates on their student loans. Private student
loans are not always eligible for student loan
consolidation, so be sure to look into your options
before taking out student loans.