Beware of Direct-to-Consumer-Marketed Private Loans

Contact your college's Financial Aid Office before signing any loan.

Although private student loans are defined by Federal regulation as "estimated financial aid," some lenders bypass any direct school involvement. In fact, there is no uniform method by which a school is notified about a student’s private loan and, sometimes, the school doesn’t find out about the loan until after the student has signed for it. 

Depending on when the school learns about the loan and the amount, an over-award may happen, leaving the borrower subject to the possible loss of eligibility for all types of financial aid. 

Before you sign for a private student loan, talk to your school’s financial aid office.

Beware of Those Official-Looking Student Loan Offers!

Aggressive direct-to-consumer marketing for student loans is increasing. Many companies and universities share customer information with their affiliates, credit bureaus, and companies with which they do business.

Lenders will send solicitations that are often misleading and confusing, especially if it's the first time the student has taken out a loan.  

In reality, few borrowers get the advertised rate. Depending on credit factors, borrowers may get a rate quote different from the advertised rate. Even if a borrower enters into these loans with a low interest rate, over time, if the rate is variable, it may increase. 

Often, advertised discounts only become available after the borrower makes a certain number of consecutive, timely payments or if the borrower agrees to automatic debiting of loan payments from a bank account. Only a small percentage of borrowers end up qualifying for such discounts. In general, rate discounts are more valuable when they begin early in the life of the loan.

Many lenders also sell their private student loans to a secondary market. If your loan is sold, the "back-end" benefits may not travel with the loan. In some instances, the sale of the loan will terminate the benefits that persuaded the borrower to apply in the first place. 

Frequently, borrowers won't see the real terms of the loan until they have already signed up for it, and the cancellation process can be difficult and hidden in fine print.

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