Student Loans: Know Before You Borrow

For most students, the same feeling comes with obtaining a loan for financing their higher education. While it opens the door to higher education, student loans bring with them the heavy responsibility of paying back these dollars. Knowing how they work, what to expect, and how to manage them can make all the difference in your financial future.

Let’s break down the basics of student loans and what you need to keep in mind before borrowing.

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What Are Student Loans?

Student loans are money that is borrowed to cover expenses in connection with attending school, including tuition, books, and living expenses. Student loans are normally issued by the government or private lenders. The major difference between the two is that federal student loans often offer more advantages, such as lower interest rates and more flexible repayment options.

Types of Student Loans

Federal Student Loans

These are issued by the U.S. Department of Education. The interest charges are usually lower, and the repayment terms are relatively better compared to private loans. Some of the most common types of federal loans include:
Direct Subsidized Loans: Students with demonstrated financial need. During college, the government pays for the interest, so students do not need to pay any interest while in school.

Direct Unsubsidized Loans: Available to all students, regardless of financial need. Interest accrues while the student is in school.
PLUS Loans: For parents of dependent undergraduate students or graduate students, meant to cover education costs not met by other financial aid.

Private Student Loans

These are private loans from private institutions like banks, credit unions, or online lenders. Private loans have a higher interest rate and less flexibility in terms of repayment options. Thus, after exploring the available federal loan options, one should consider taking a private loan very seriously.


National Collegiate Student Loan Trusts Bought Securitized Private Student Loans

The CFPB filed its lawsuit in 2017 against National Collegiate Student Loan Trusts, or NCSLT — entities comprising over a dozen different trusts — for operating improper or unlawful collection practices.
“During the run-up to the financial crisis, there was a proliferation of subprime-style student lending,” explained the CFPB in a statement issued earlier this January. “Student lenders teamed with investment bankers to package student loans into securities. The National Collegiate Student Loan Trusts are one example of this. The Trusts are a set of fifteen securitization trusts created under Delaware law that collect, aggregate, and securitize student loans that they then service.

The CFPB claimed NCSLT engaged in illegal debt collection, including bringing “thousands of cases though they did not have or could not find the documentation necessary to prove either that they own the loans or that the consumer owed the debt;” bringing “false and misleading affidavits” in which “affiants claimed personal knowledge of the student loan debt they did not have” or “misrepresented that affidavits were properly notarized when they were, in fact, not;” and attempting to collect on private student loan debt after the relevant statute of limitations period had run.

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