Friendlier Private Student Loans
College students who have educational loans from private lenders could be looking forward to a more borrower-friendly environment if two recent pieces of Congressional legislation are passed. The first helping hand comes from the financial regulation bill under consideration in the Senate and the House. Although the Senate and the House are debating different versions of the bill, both versions of this key piece of legislation are promoting a consumer protection entity that would address borrower complaints about unfair private student loan practices and supervise the underwriting policies of private lenders. The second layer of protection comes in the form of the Private Student Loan Bankruptcy Fairness Act of 2010, which will allow for some of a borrower’s private student loans to be discharged if the person files for bankruptcy.
According to a recent article by SmartMoney, these two bills could change private student loans in several ways. First, the consumer protection entity introduced in the financial regulation bill will centralize the oversight of the private student lending industry and address the complaints that borrowers file against lenders. To prevent lenders from providing private loans that are larger than the amount that a student needs after taking federal financial aid into account, the House version of the financial regulation bill would require lenders to certify all of their direct-to-consumer private student loans with the college. In addition, the House version of the financial regulation bill would enable colleges to encourage students to take advantage of all the federal financial aid available to them before turning to private lenders. Moreover, borrowers of private student loans may be able to have their unpaid balances discharged when they declare bankruptcy.
Some private student lenders are easing their terms even before the two Congressional bills are passed. On May 4, Sallie Mae announced that it had lowered interest rates for its Smart Option Student Loan, which requires borrowers to repay the interest on their loans while they’re still in school rather than defer payment until after graduation. Beginning on May 10, the loan rates on this product will range from Libor (London Inter-Bank Offer Rate) plus 2.5 percent to Libor plus 9.875 percent instead of ranging from Libor plus 4 percent to Libor plus 12.5 percent. Furthermore, Sallie Mae will be eliminating the disbursement fee associated with origination of a loan, and customers who sign up to make recurring monthly payments via automatic debit from their bank accounts will continue to receive a 0.25 percent interest rate reduction.
Thanks to Flickr for the photo.
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