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Released: October 25, 2012

Student debt debacles

Source: New York Times Editorial (Free Registration)

Students who finance their educations through private lenders often wrongly assume that private and federal loans work the same way. In fact, they do not. Most federal student loans have rates of 6.8 percent (or less) and offer broad consumer protections that allow people who lose their jobs to make lower, affordable payments or to defer payment until they recover financially. Private student loans — from banks and other private institutions — typically come with variable interest rates and fewer consumer protections, which means that borrowers who get into trouble have few options other than default. Many borrowers did not learn about the differences between private and federal loans until after they became deeply indebted. And because of confusion about variable rates, they are sometimes shocked to learn what they owe when that first bill arrives.

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