By Jessica Malitoris on July 9, 2010
.jpg.aspx?width=75&height=75) For many, college is too great a financial stretch to handle alone. Student loans offered by the government can help, but in recent years the gap between the amount students require in loans and the amount the government can offer has grown substantially, reaching $120 billion in 2007. Private student loans—essentially non-government offered loans, offered by private loaners, or, in the case of private schools, financial aid through the school itself—attempt to fill that gap, to varying degrees of success. Unfortunately, unlike federal student loans, private loans can be less reliable, and have much lower regulations on interest rates. They are also influenced more by credit scores, so a bad credit score can increase interest rates for a private loan to a much greater extent than those accepting federal loans.
Fortunately, the Private Student Loan Transparency and Improvement Act of 2008 has recently introduced greater restrictions on private lenders. As the title suggests, the act increases the amount of information private lenders are required to share. The act mandates that lenders must be clear and up-front about the range of APRs applicable to a loan, whether the interest rate is fixed or variable, any extra fees that may be available, etc. In addition, the act creates a 30-day “shopping window” during which people who have been approved for loans are permitted to lock down the terms of their agreement and shop around for better rates. It also allows students to cancel a private loan up to three days after it has been signed.
Private student loans can be tricky to navigate, particularly when the lender is not as up-front as they should be. Fortunately, the Private Student Loan Transparency and Improvement Act has recently instated further regulations to protect students seeking loans.
See also: What are Stafford Loans? |