Government student loans website may soon treat private loan companies more favorably

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The private student loan industry may soon receive more favorable treatment on the government’s financial aid website.

Right now, the website for the Department of Education’s Office of Federal Student Aid is promoting private student loans as an option that students should only consider after government-offered loans. But the site may soon take a less biased approach to private lending, according to reports from a speech by Wayne Johnson, chief of the FSA’s strategy and information office at a lending conference on May 9. .

Johnson’s speech said the department “could help private student lenders raise awareness among student populations that are not served by federal loans.” That’s according to an analyst note released this month by Moshe Orenbuch, Managing Director of Credit Suisse, summarizing highlights from the Education Finance & Loan Symposium.

Johnson told the crowd that the department’s website “primarily supports federal loan programs, but that would likely change in the near future,” Orenbuch wrote. (A spokesperson for the ministry did not respond to requests for comment on the speech.)

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Any scenario that portrays private student loans in a favorable light, particularly in relation to federal debt, would be “troubling,” said Jennifer Wang, director of the DC office of the Institute for College Access and Success, an organization of research and advocacy focused on college access and affordability.

In recent years, the government has refrained from promoting private student loans, which consumer advocates and financial aid experts see as much riskier than federal debt.

The comments are the latest indication that the Trump administration is taking a less aggressive approach to monitoring private companies involved in student loans and education. Another recent example: The Department of Education terminates a unit developed under the Obama administration to investigate fraudulent practices among for-profit colleges, The New York Times reported this month.

Mick Mulvaney, acting director of the Office of Consumer Financial Protection, also demoted an office that has historically surveyed and monitored student loan companies to an office offering financial education.

If officials made a website change, it would come as the Education Department and Republican lawmakers appear to be pushing for private companies to play a bigger role in student loans. Republican leaders in Congress have proposed to cap the amount of federal money graduate students and parents can borrow to fund school, a move that would create a larger market among borrowers for private student loans.

Johnson, who has worked in student loan and credit card companies, has expressed his admiration for private sector technology on several occasions and has indicated that he would like to incorporate both some of the companies and their approach into the business. government financial aid and student loan. system.

Why the emphasis on private lending matters

If the Ministry acts to present private loans in a more neutral light, this could contradict advice given by financial aid professionals and even private student lenders rely as much as possible on the federal student loan program before turning to other sources of funding.

The government limits the amount of money undergraduates can borrow under the federal program, and experts generally recommend that students use up their federal loan before turning to private loans.

For their part, private lenders would “be in favor of encouraging students to explore all options,” said Nick Simpson, vice president of public affairs at Consumer Bankers of America, a commercial group. “We believe that for many students, private loans are a better option than federal loans,” he said. Borrowers with a good credit history and a demonstrated repayment capacity might find private loans a more affordable option for them, he said.

In the past, the Department’s website has described private loans as “an option students should consider,” said David Bergeron, senior researcher at the Center for American Progress, a left-wing think tank and a veteran of over. 30 years of the department.

But in the mid-2000s, the site began to talk more critically about private lending in the following an investigation led by then-New York Attorney General Andrew Cuomo on bribes lenders paid to colleges to steer students towards their products.

If officials take steps to portray private lending in a more neutral light on the government website, “that would go back and expose students to more potential harm because of their focus on lending programs that don’t. do not contain the same consumer protections. Like federal loans, Bergeron said.

• Federal student loans are generally a better option for borrowers, experts say. Interest rates on some federal student loans are subsidized by the government, often making them lower than those available in the private market, especially for young people with no credit history.

• Federal student loan rates are also set over the life of the loan, which is often not the case with private debt. Typically, private student loans also require an adult with a credit history to co-sign the loan, meaning that the student’s mother, father, grandparents, or other family member are required. responsible if the repayment plan goes awry.

• In addition, the government offers a variety of flexible repayment programs if borrowers encounter financial difficulties, which may be rare in the private market. And federal student loans come with forgiveness possibilities after at least a decade of repayment.

“For most students, Federal Student Loans will be their best option because of all the inherent protections that are built into the program,” said Justin Draeger, president of the National Association of Student Financial Aid Administrators.

In some cases, graduate students or parents with good credit histories may benefit from a better interest rate in the private market, Draeger said. But even then, there are tradeoffs. “You are largely not going to get the same rear protection during the repayment,” he said.

Although consumer advocates and financial aid professionals generally agree that private loans are a riskier way to finance college, nearly half of students with private loans still have the option of borrowing through the federal program, according to data from a government survey, Wang noted.

This could be because students may not know the difference between federal and private loans, Wang said. “If the advice on the Department of Education website becomes more confusing or more confusing, I really worry about borrowers,” she said.


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