As college students head back to school, Illinois Sen. Dick Durbin is calling on lawmakers to pass new regulations on private student loans.
At a press conference Monday, Durbin said many private student loans don’t have the same perks that federal student loans do — things like fixed interest rates or the ability to defer payment. He said most students “don’t know what they’re getting into.”
“Two out of three students say they didn’t understand the difference. They didn’t know there was a difference between the private student loan and the government loan. There’s a dramatic difference,” Durbin said.
Durbin has introduced a bill that would require colleges and universities to inform students about federal aid options as well as the differences between federal and private loans. Durbin is also sponsoring a bill to authorize debt forgiveness for private student loans in the case of bankruptcy. Both federal student loans and private student loans cannot be discharged when a person declares bankruptcy, but Durbin said a private student loan is the only type of private debt that is non-dischargeable.
“There are a lot of slick operators out there, who are trying to push students into debt, telling them it’s something you’ll pay off later on,” Durbin said. “We find out a sizable number of students drop out of school before they ever get a degree. All they have to show for their college experience is a debt that sticks with them for a lifetime.”
According to the Consumer Financial Protection Bureau, outstanding student loan debt now exceeds $1 trillion dollars.
But Pace Bradshaw, vice president of congressional affairs at the Consumer Bankers Association, said the vast majority of that lending, 93 percent, is done by the federal government.
Bradshaw said the CBA — which represents financial institutions who offer, among other things, student loans — applauds lawmakers who are trying to reign in the cost of higher education, but he said the characterization of private lenders is not always fair.
Bradshaw said major lenders do offer fixed-rate loans. He said that federal assistance like the Stafford subsidized student loan can cover a certain amount of the cost to attend college, and he added private lenders play an important role in providing financial assistance to cover the rest of those costs.
“It’s important for borrowers out there to really have a complete and accurate understanding of the private loan market,” Bradshaw said. “make sure you do your due diligence, and actually, when people look at the private student loan market, they will realize it’s a great complement to some of the federal offerings out there.”