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. This can result in a dire situation!
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 campus-based, state or federal loan or grant funds.
Before you sign for a private student loan, talk to your school’s financial aid office.
Beware 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 for the average student, especially if it's the first time you have ever taken out a loan.
In reality, few borrowers get the advertised rate. They're a lot like credit cards; even if they start at what seems like low rates, those rates can shoot up.
Some of these advertised discounts are available only 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 actually qualify for the discounts that are contingent on a certain number of consecutive, on-time payments. 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 very benefits that caused you to take out that particular loan in the first place.
In many cases you won't see the real terms of your loan until you've already signed up for it, and the cancellation process can be difficult and hidden in fine print.