Private Student Loans May Prove Too Risky for Students

June 30, 2015 Posted by kingcade

When we think of student loans, we often think of federal loans offered by the government. However, private student loans are another type of loan that students should be wary of. Private loans, which have been termed as the “Wild West” of student borrowing, represent a potentially dangerous trap for consumers. These make up a significant yet often overlooked part of the nation’s $1.2 trillion of student loan debt. Approximately $150 billion of U.S. student debt comes in the form of private loans, which can be issued by banks and directly from schools.

According to a recent investigation by the Miami Herald, many students attending for-profit colleges claimed to have been lied to and lured into enrolling in their school’s loan program. Interestingly, many for-profit colleges were reported to have extremely high private loan default rates. Recently, the U.S. Secretary of Education unveiled the outline for a massive student loan forgiveness plan. The option will focus on the long-overlooked provision of federal law that allows borrowers to seek a clean slate if their school is guilty of misconduct.

According to financial aid experts, private loans should be utilized only as a last resort. Unlike federal student loans, private student loans:

  • Often demand their own separate monthly payments;
  • Have far less flexible repayment options;
  • Have extremely high interest rates;
  • Are NOT eligible for loan forgiveness programs;
  • Will NOT not be included in the newly introduced option, which allows relief from student loan debt if a student is defrauded by their college.

A predatory-lending lawsuit has been filed by the federal Consumer Financial Protection Bureau (CFPB), against ITT Technical Institute. Some of their private loans had interest rates as high as 16.25 percent, with an origination fee as high as 10 percent. While the college disputes the CFPB’s allegations of fraud, the U.S Securities and Exchange Commission sued ITT’s top executives last month. Allegedly, ITT tried to hide its high rate of private loan defaults from auditors and investors.

The American Student Financial Group (ASFG), which has helped administer Dade Medical College’s private loans, is also facing a lawsuit. Dade Medical College of Coral Gables had more than 2/3 of their students with private loans in default. One student was instructed to drop her monthly payments at the campus, only to later receive a “delinquent” letter from ASFG, stating that she was more than six months behind on her payments.

Students taking out private loans often do not realize that these are far riskier than federal loans. A report by the Consumer Financial Protection Bureau found that many borrowers who took out private loans had not maxed out on federal loans, which should always come first before private loans are even considered. Even though for-profit school default rates are nearly twice as high at non-profit schools, students still take out private loans. Some for-profit students complained that they were even pressured into taking out private loans they did not want.

Many colleges have convinced students to accept a “forbearance,” where the student temporarily postpones any payments, the past due balance is added to the loan principal, and the account is made current. Unfortunately, forbearance is a short-term solution that does not solve the larger issue of students who cannot afford to pay back their loans. It also increases the student’s total amount of debt because of accruing interest.

For borrowers who are struggling with student loan debt, relief options are available. Many student loan borrowers are unaware that they have rights and repayment options available to them, such as postponement of loan payments, reduction of payments or even a complete discharge of the debt. It is important you contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at



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