Can College Graduates Bank Future On Private Student Loans?

With the ever rising college costs, students are turning to “the riskiest way for paying for schooling”, as dubbed by an education organization: private student loans. They have been termed as “risky” since they are likened to credit card debt.

The danger with private student loans is the fact that they have a variable interest rate. For instance, a report submitted by the group called The Project on Student Debt found that undergraduates who took out these loans in the academic year 2003-04 at 5% interest ended up securing the same loans at 14% in 2007-08. The group reported that the worst thing was that over two-thirds of the people who borrowed privately did not exhaust their options of applying for what is regarded cheaper and safer – the federal loans.

Most students graduate with the a degree in the subject of their choice but a very few percentage of them get into the job market all smiles. A good example is Kristin Schlaud (with a law degree from Wayne State University and a master’s degree in commercial real estate from John Marshall Law School) who wonders whether her degrees were worth what she is going through currently. Three years down the line she is broke and in debt, owing almost $250,000.

College students need more protection, said Lauren Asher, president of the Institute for College Access & Success, the mother organization for The Project on Student Debt. She said that the federal government ought to prevent students from taking unnecessary private student loans; especially after the federal loans have been made so affordable – effect from July 1.

Apart from the fact that it is difficult to discharge the private student loans on claims of bankruptcy, they are cumbered with more disadvantages: the students who take out private loans are not eligible for payment deferments, loan forgiveness programs or income-based repayment options that federal loans offer.


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