FTC: This post is not sponsored and I am not a financial advisor. All thoughts and weird opinions are my own. From one millennial to another !
Student loans suck! Besides simply just know this, and feeling this, there are real tangible reasons why student loans actually and factually suck. The private sector of student loan financing is a dark and grim space with very little federal regulation.
Much of the conversation during the bid for the DNC nomination centered around student loan debt and student loan forgiveness. This wasn't shocking to anyone, as the nation faces a ballooning 1.5 trillion dollar student loan debt crisis. It is in fact a crisis. If it wasn't we wouldn't hear about the demands for student loan forgiveness on what seems to be a daily basis.
Though the conversation is often polarized between those demanding student loan forgiveness, and those demanding everyone pay their own debts, there is one teeny tiny factor that is often overlooked. Most of the conversation around student loan debt and student loan forgiveness is surrounding federal student loan debt. [ 8 Student Loan Repayment Options You Should Know About ]
Both Bernie Sanders & Elizabeth Warren (the king and queen we truly let down) made distinct plans of action for student loan forgiveness in the federal and private sector. Why? Although private student loans only make up about 7.8% of the national student loan debt (approximately $131.81 billion dollars) they are unregulated and the most detrimental to student loan borrowers.
The private sector of higher education funding is rampant with not only predatory student loan practices, but also many illegal and unethical practices as well. Let's take a moment to dive further into those so you can spot the signs, advocate for yourself and preemptively avoid them altogether.
The predatory student loan practices will vary from unethical and unfair to straight up illegal, so I've gone on and categorized them for you in such a manner. If you are experiencing any form of financial aid abuse it is vital that you advocate for yourself. The mental health cost can be just as extreme as the financial cost when it comes to illegal student loan predatory behavior.
Many of these predatory student loan practices are perpetuated by the private sector (most in fact) but some can occur on the federal student loan level as well. These are the things you need to look out for:
These particular practices may not be illegal, but they are extremely unethical and should be addressed when ever you connect with your loan provider.
This is an unethical predatory student loan practice that both private and federal loans are often guilty of. On the federal level there are 8 different repayment options, but often times only the Standard, Interest Only- or Graduated Repayment, and Income Based repayment plans are delivered as options.
This is also the case when it comes to loan providers suggesting forbearance as the only viable option during times of financial difficulty instead of offering other income driven repayment options.
Solution: When you speak to your loan providers ask them what are all of the specific types of repayment plans they offer. Then ask them to explain to you which plans you qualify for and don't qualify for. Be sure to ask why! IF you don't qualify for a plan they have to explain that in clear detail, so that you know all of the options afforded to you. Don't be afraid to ask: How long will it take to pay off this debt on this payment plan? OR Does this extend the life of my loan?
I wish I could say student loans were the only loan providers doing this but they are not. In fact, many loan providers on all scales (car payments, personal loans, credit card payments, and yes sometimes mortgages too) will improperly manage your repayment to keep you paying that debt for longer than necessary.
This can look like inaccurately allocating funds (putting your extra payments towards interest instead of towards the principal where they would be the most beneficial), or mishandling your extra payments/ payments in general so you incur late fees.
Solution: This is going to take a little due diligence on your part but whenever you make a payment towards debt, you have to watch for when the payment is posted (I usually have a notification that comes to my phone / email letting me know the payment has been posted). I always ask how many days before the payments post typically so I know how to set up my bill payment budget/ tracker (you can grab this here in my Master Your Money Workbook).
Last thing you want to do when it comes to this unethical practice is watch where your extra payments are going. Some loan providers make it really simple to pay extra towards the principal, while others will make you jump through hoops. A phone call will clarify this and ensure your money is going where you intended it to and arriving on time.
This is another predatory student loan practice that occurs very often. The lack of transparency in the promissory note makes it incredibly difficult to truly understand the relationship you're entering when you sign on the dotted line. Often times extremely confusing language will be used on purpose to hide information in the terms of the loan.
Solution: the key thing to look for when you are signing a student loan is the interest rate, repayment options and increased monthly payments. IF those terms are unclear to you as you read your promissory note, then CALL them up and ask them specifically about those three topics that will greatly affect your process in paying back this debt.
They must inform your whether or not your interest rate will be increasing over time (My private student loans started at 6-7% and were around 13-16% by the time I finished paying them off). They must also let you know what your repayment options are, whether or not you will face an early repayment penalty, and will minimum payments be increasing over time (on a graduated repayment plan- they do).
This particular predatory student loan behavior is straight up illegal and should be reported if it is happening to you.
Student loan providers are NOT allowed to release your information in regards to your debt to anyone besides the credit reporting bureaus. The status of your debt falls under the protection of the federal privacy laws, and can not be made public. This means your employers should not be getting information about your loan status and debt repayment from them at all!
This one is super easy to identify- if your loan provider is threatening you that is ILLEGAL. They are bounded to professionalism and proper business behavior. Which means profane language is an absolute NO, and any intimidating or threatening language used over the phone/ via email/ or through snail mail should immediately be reported.
I know this one is going to make us all smile- but before you take a huge breath of relief there's a few things I want to clarify. Repeated "robocalls" are a no no as they are abusive, intimidating and threatening (see previous illegal practice). You have to give consent for your loan provider to call you. So if you haven't given consent, or you have taken consent away- they should not be calling you.
However they do have the right to contact you in your preferred manner to attempt to collect payment in a reasonable manner if you have defaulted on your payments. They also must contact you to inform you if they are sending your loans to collections. Be aware of the contact method you do choose so you don't miss out on pertinent information and inadvertently give them the upper hand in all future negotiations. Nah... we don't want that !
What kind of post would this be if I didn't give you some resources to help you take down the predatory financial loan providers one dollar at a time. Below you will find links to 3 things: The Consumer Financial Protection Bureau, The Federal Trade Commission, The US Department Of Education.
The Consumer Financial Protection Bureau : The CFP gives tons of examples of what financial abuse and harassment look like so you know specifically what to look for/ how to identify it. They specifically focus on illegal predatory student loan practices under the Fair Debt Collection Practices Act.
The Federal Trade Commission: The FTC gives a pretty dope comprehensive itemized list of loan repayment and forgiveness options as well as consolidation opportunities. Best part is they acknowledge that a lot of these loan providers are legalized scam artists and provide a list of loan scams to look out for and avoid.
The US Department Of Education: They mostly focus on federal loans- duh- but they do provide answers for general common loan questions regarding how to choose loan service providers that are ethical and do not practice illegal loan tendencies.
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