Private Student Loans
By L. Jed Berliner, Western & Central Massachusetts Bankruptcy Attorney on Dec 28, 2008 in Debts Not Dischargeable
Private student loans are awful. Terrible. Heinous. Am I clear on this?
We think of student loans as regulated by government and inherently fair to the student. This is not true for private student loans. Let’s not be confused, and let’s not underestimate the opportunity to be misled.
A private student loan is, well, almost the same as a regular loan. They are not Direct Loans, from the government to the student. They are not guaranteed or insured loans, where the government is in the picture somewhere and making sure that the interest rate is appropriate. Nope. A private student loan has no government involvement and can charge whatever interest rate it can get away with.
The only difference is that they enjoy the same nondischargeability protections of bankruptcy law as “regular” student loans, even though there is no government oversight.
Consider my client, a young, smart, and apparently lucky lad with an opportunity to attend a prestigious national engineering college. He goes online for a loan and figures he’ll do well enough after graduation to pay it back. But (1) it’s a variable interest loan, (2) requiring his father as cosigner, and (3) with a higher default interest rate. His $35,000 loan became $40,000 in 18 months. He’s 25 years old and his financial life is about over. As is his father’s, who is in his 60’s and on a fixed income.
He could have done better with smart management of credit card debt.
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