The recent lawsuit in which the Consumer Financial Protection Bureau (CFPB) is suing for-profit college chain Corinthian Colleges for alleged “illegal predatory lending” is a reminder to students: Don’t take out a loan without doing your homework.
CFPB alleges that since June 2013, Corinthian lured thousands of students into taking out high-cost private loans to cover tuition costs by inflating job prospect rates and paying employers to temporarily hire their graduates. Additionally, the federal consumer watchdog agency said that Corinthian charged as much as $75,000 for a bachelor’s degree and pushed students into private loans with approximately 15-percent interest rates (more than double the interest rate for Federal loans). CFPB also alleges Corinthian used illegal debt collection tactics, such as pulling students from class who were late on their loan payments, blocking students from using computers, or even withholding diplomas.
This case painfully illustrates how taking out private loans can leave unsuspecting students in utter financial straits. Before borrowing any money for your education, be sure to research all your financial aid options. When you’ve carefully narrowed down your choices, review the terms of the loans or offers. As with any agreement, read the fine print, ask tons of questions, and know exactly what you’re agreeing to. How much does the loan cost? What will my monthly payments be? Is the interest rate fixed or variable? Do I have to pay any fees? When do I have to start repaying the loan?
It’s also a good idea to reduce how much you need to borrow in the first place. Here are some ways to help bring down your loan amount:
- Apply for grants and scholarships. Some helpful websites for this search are www.fastweb.com, www.studentsscholarshipsearch.com, and www.collegescholarship.org.
- Choose a Federal loan vs. a private loan. Fill out the Free Application for Federal Student Aid (FAFSA) form every year you’re in school. FAFSA gives you access to different types of Federal aid such as work-study jobs, grants and scholarships, and loans. Also, Federal loans have many advantages over private loans, such as fixed interest rates, deferment periods, no cosigner requirements, and usually have better repayment terms.
- Get a cosigner with good credit rating. Remember, however, the cosigner is responsible for the loan if you fail to pay.
- Do the math. As a rule, do not take on a debt larger than your expected first year’s salary, according to www.learnvest.com. Ideally, you want to be able to pay back your loan within 10 years after you graduate.
- Keep your costs down. Think of different ways to save money during college, such as living at home or with a roommate, buying used textbooks, and cooking at home instead of going out.
- Consider taking a part-time job, then pay for some of your costs while in college.
- Do your first two years of school at a community college. You can then get your general education credits completed at a lower cost and work on your GPA to qualify for scholarships. Just be sure to check which courses will transfer to a four-year institution.
- Try to graduate early. The less time you’re in college, the less you’ll need to borrow.
- Consider making interest payments while in college. This will help reduce the amount you have to pay later.
For more information on student financial aid, including loans and grants, visit the following websites: