Most college students (65% or so) have a student loan to get through their undergraduate work. It’s pretty common, and loans are easy to get. There are, however, certain loans that are better than others.
Federal loans have certain rights and responsibilities that most students can live with. All in all, you can be pretty safe with them in terms of refinancing, consolidating, and extending your payment time. But you have to pay them back. It’s not a gift.
Here are three of the worst kinds of student loans:
Private loans are offered through organizations like banks, credit card companies, non profit agencies (aimed at helping a group of students like veterans), and do not include the benefits and protections available with federal loans.
Some of the worst kinds are private lenders and their marketers who may forge well-known names, seals, logos, or other graphics to lead you to believe they are part of or affiliated with the federal government and its student loan programs. The US Department of Education does not send advertisements or mailers, or otherwise solicit consumers to borrow money. If you receive a student loan solicitation, it is not from the Department of Education.
As always, don’t give out personal information on the phone, through the mail, or over the Internet. There are plenty of scam artists who act like professional lenders and get all your personal information from you on the pretext of helping you find a great deal. Forget it.
These are a hybrid of the Federal and private funding sources. Because of that, they may not be appropriate. These loans are usually originated by a quasi-public state agency or a state-supported non-profit organization. They may look like a better option than private loans, but many state-based lenders have collections powers that the federal government does: without a court order, the state can seize state benefits, intercept state tax refunds, and in some cases, garnish your wages. But once you’re in it, you’re in it; you cannot refinance, extend payment options, or adjust the rate. So be sure you know what you are getting into.
This is by far the worst idea ever. Credit cards are high-interest rate loans, regardless if you start with a 0% rate. Over time your interest rate will increase and you will accrue, a ton of debt. Students are fair game for the credit card companies, and they have been known to give students a larger line of credit when they are maxed out, all in the name of “helping” you through school. Don’t fall for it. If you plan on using a credit card to buy books and incidentals for school, be sure to make it so that it’s manageable or you will find yourself in hot water.
Check out the track record of particular private student lenders with your state Attorney General (www.naag.org), your local consumer protection agency (www.consumeraction.gov), and the Better Business Bureau (www.bbb.org).