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Articles / Paying for College / Fake Federal Student Loans

May 18, 2020

Fake Federal Student Loans

Are you weary of the tidal wave of scams coming at you from "out there"? Well, here's one to add to your list: student loans that trick you into thinking that they are Federal government loans. As Consumerist.com notes:

Some students who didn't read the fine print are finding out too late that what they thought were federal student loans were actually private loans. The mistake is the difference between a 6% and 18% interest rate.



Here's the front end of an informative article by Kathy M. Kristof in the Los Angeles Times that can help you avoid this trickery:

Natalie Hickey left her small hometown in Ohio six years ago and aimed her beat-up Dodge Intrepid for the West Coast. Four years later, she realized a long-held dream and graduated with a bachelor's degree in photography from Brooks Institute in Santa Barbara.

She also picked up $140,000 in student debt, some of it at interest rates as high as 18%. Her monthly payments are roughly $1,700, more than her rent and car payment combined.

"I don't have all this debt because I was buying stuff," said Hickey, who now lives in Texas. "I was just trying to pay tuition, living on ramen noodles and doing everything as cheaply as I could."

Hickey got caught in an increasingly common trap in the nation's $85-billion student loan market. She borrowed heavily, presuming that all her debt was part of the federal student loan program.

But most of the money she borrowed was actually in private loans, the fastest-growing segment of the student loan market. Private loans have no relation to the federal loan program, with one exception: In many cases, they are offered by the same for-profit companies that provide federally funded student loans.

As a result, some students who think they are getting a federal loan find out later that they hold a private loan. The difference can be costly.

Whereas federally guaranteed loans have fixed interest rates, currently either 6% or 6.8%, private loans are more like credit card debt. Interest rates aren't fixed and often run 15% or more, not counting fees.

Most students have little experience in taking out loans, yet the federal government doesn't require lenders to disclose the total cost of a student loan and other terms upfront -- before signing -- as it does for car loans and mortgages.

"Students are in the cross hairs, being bombarded by very sophisticated and, to some extent, ethically marginal lenders," said Rep. George Miller (D-Martinez), who sponsored legislation passed this year that will require lenders to provide more disclosures on fees. "My fear is that we are developing a predatory market, just like we have had in mortgages."

About $15 billion in private student loans are expected to be funded this year, a 900% increase from a decade ago, according to the nonprofit College Board. Private loans are growing faster than federally guaranteed loans, which rose 59% over the same period, in part because of limits on how much students can borrow with the government's backing . . .

The article covers five Web pages, so there's lot to digest. However, it's worth the time to consider just so that you won't become the nlatest victim of the myriad hucksters just waiting to snatch your wallet or purse.

It's a treacherous world out there. Be careful . . . and well informed!

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Be sure to check out all my admissions-related articles and book reviews at College Confidential.

Written by

Dave Berry

Dave is co-founder of College Confidential and College Karma Consulting, co-author of America's Elite Colleges: The Smart Buyer's Guide to the Ivy League and Other Top Schools, and has over 30 years of experience helping high schoolers gain admission to Ivy League and other ultra-selective schools. He is an expert in the areas application strategies, stats evaluation, college matching, student profile marketing, essays, personality and temperament assessments and web-based admissions counseling. Dave is a graduate of The Pennsylvania State University and has won national awards for his writing on higher education issues, marketing campaigns and communications programs. He brings this expertise to the discipline of college admissions and his role as a student advocate. His College Quest newspaper page won the Newspaper Association of America's Program Excellence Award, the Pennsylvania Newspaper Publisher's Association Newspapers in Education Award, the Thomson Newspapers President's Award for Marketing Excellence and the Inland Press Association-University of Kentucky School of Journalism and Mass Communications Inland Innovation Award for the Best New Page. His pioneering journalism program for teenagers, PRO-TEENS, also received national media attention. In addition, Dave won the Newspaper Association of America's Program Excellence Award for Celebrate Diversity!, a program teaching junior high school students about issues of tolerance. His College Knowledge question-and-answer columns have been published in newspapers throughout the United States. Dave loves Corvettes, classical music, computers, and miniature dachshunds. He and his wife Sharon have a daughter, son and four grandchildren.

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