The Education Department leads students toward private student loans because a bear is blocking federal student loans (illustrated)
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Can you get out of a student loan crisis by making it somebody else’s problem?

The Education Department might be considering that approach, judging by a little-covered recent speech from one of its senior leaders.

Last month, the Office of Federal Student Aid’s head of strategy and information, Wayne Johnson, told people in the education lending industry his website “was mainly supportive of federal loan programs, but that would likely change in the near future.” The Department didn’t respond to requests for comment on that.

If the Department suddenly became “supportive” of private student loans, that would be a major shift in its stance. It would also be bad news for young consumers who haven’t yet learned the difference between federal and private loans.

The difference between federal and private loans

For now, here’s the highlights of how the FSA website describes the difference between the loan types…

  • “If you need to borrow money to pay for college or career school, start with federal student loans.”
  • “Federal student loans include many benefits (such as fixed interest rates and income-driven repayment plans) not typically offered with private loans. In contrast, private loans are generally more expensive than federal student loans.”
  • “Many private student loans require payments while you are still in school.”
  • “Private student loans are not subsidized. No one pays the interest on your loan but you.”
  • “Private student loans may not offer forbearance or deferment options.”
  • “It is unlikely that your lender will offer a loan forgiveness program.”

Contrast that with federal loans, which are far more flexible.

The interest rate can be as low as a third of what you get on private loans, saving thousands of dollars over the live of the loan. On many federal loans, interest is subsidized — meaning the government covers the interest charges while you’re in school. You don’t have to worry about payments until you should theoretically have a job that makes them affordable. The interest on them can be deducted on your taxes (a small thing, but every bit helps) and, depending on your career goals, you may be able to get your student loan balance forgiven.

What would “supporting” private loans look like?

If it seems like I’ve been railing and ranting against the student loan changes at the CFPB and Education Department a lot lately, it’s because I have.

The changes are coming fast and furious, with the CFPB shutting down the entire office dedicated to investigating student loan complaints at the same time the Education Department is giving up on investigations into for-profit college fraud and cozying up to people from that background. Meanwhile, the post-recession regulations written up in Dodd-Frank to prevent a similar crisis are being quickly eroded.

In a normal administration, I wouldn’t take a couple sentences from an industry speech so seriously. But in the context of everything going on, I think I’m justifiably worried about what comes next for consumers.

If the FSA department were to suddenly shift gears and promote private loans on equal footing with federal loans, it would probably follow the trend we’ve already seen in other Trump-era websites. For instance, we’ve seen lots of references to climate change, including educational content and links to scientific reports, removed from federal websites — not just the EPA, but the State department and others that have reason to mention it. It’s a coordinated effort.

That means the CFPB would probably tuck away this report on private student loans which found many “borrowers reported that they did not know they had fewer options when repaying their private student loans than they did with their federal student loans” and that “many borrowers are struggling to repay.” It would probably also remove lots of typical questions about private student loans, which is also calls “alternative” education loans.

This information isn’t going to disappear from the Internet. Websites like ours will still have robust information on the differences between federal and private student loans. But the federal government should be the most reliable and trusted source of information about its own loan programs. Sadly, I’m worried that might not last much longer — and it’s going to cost new students “big league.”

Article last modified on June 14, 2018. Published by Debt.com, LLC . Mobile users may also access the AMP Version: Is the Education Department Planning to Promote Private Student Loans? - AMP.

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Article last modified on June 14, 2018. Published by Debt.com, LLC .