Thursday, August 18, 2022

Research loan companies before signing up

As the credit crunch continues to wreak havoc, students in need are finding their financial aid awards are becoming smaller and smaller while tuition costs rise and rise. Many are turning to private loans to bridge the gap and get the money they need to continue their education.

Very few college students have much experience dealing with the loan industry, and the amount of information out there about the nature of the industry and what the various interest rates are and how they change can be intimidating to those seeking a loan.

Unfortunately, several companies are using this ignorance to prey on students.

The attorney general of New York is preparing a lawsuit against student lender Goal Financial, alleging that the company lured borrowers with gifts such as iPods and cash. It also alleges that the company misled customers about terms and benefits of the loans including advertisements with misleading information about how their private loans had lower interest rates and better terms than government loans.

It’s easy to see why an item such as an iPod would entice a student to a certain student loan. A person can touch and hold an iPod, whereas a low interest rate exists only on paper.

Unfortunately, the fact that most student loans don’t have to be paid back until after a student graduates means the idea of what the necessary payments will be and the exact amount a student will end up paying often isn’t fully appreciated — unlike regular loans in which payments begin immediately.

This means students who get a bad interest rate or bad terms generally don’t fully realize this until they’ve graduated and begun receiving bills they can’t afford — at which point it’s far too late.

In a previous inquiry into the industry, the state of New York also determined certain companies had given gifts to universities in order to entice them to steer students to their company.

Given that students are supposed to trust their universities, this is a most troubling charge. While MSU students are lucky in this regard — MSU does not recommend any private loan company over another — many students at other schools may be guided into a bad loan simply by trusting those who should be looking out for their interests. Once students realize what’s happened, why should they ever trust their school again?

Now it should be noted that the student loan industry is a business. Students are not being forced to sign bad loans, and they are always free to shop around in order to find the best deals.

But the fact remains that these companies are preying on people they know are uninformed with tactics that are extremely ethically questionable.

Students need to realize the full impact of their decisions before they sign on a dotted line for a loan — it’s a burden they’ll be carrying and paying off for years.

You don’t get anything for free. Unless students do their homework, that iPod they got for signing the loan will end up costing them far more than it would if they had simply bought it themselves.

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