Some folks are offering a bit of advice for those college bound students seeking financial aid for the first time. Make sure you know the difference between a federal student loan and a private student loan. That’s the message from U.S. Sen. Dick Durbin (D-Ill.) who is pushing the “Know Before You Owe” legislation that would ensure students know the difference between the two loans.
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Brian Imus, director of the Illinois Public Interest Research Group says about two-thirds of private student loan borrowers don’t know the difference. “Students need the protection of the Know Before You Owe act,” Imus said. Like federal student loans private student loans cannot be wiped out with bankruptcy. Durbin has proposed a bill to change that but it hasn’t gotten far. Unlike federal student loans, private student loans carry much higher interest rates and are not flexible when it comes to repayment plans and deferment when one hits hard times.
Sheila Uribe graduated for Elmhurst College with $35,000 in private student loan debt which quickly ballooned to $60,000 due to high variable interest rates. Though she and her husband work full time she says she feels like she has been “sentenced to life without parole.” She is hoping that by telling her story other students won’t make the same mistakes.
Durbin’s bill would require private lenders to certify with the borrower’s school that the student is enrolled and the amount the student is eligible to borrow before issuing a private loan. It would provide the borrower with quarterly interest updates on their loans. The bill would require colleges and universities to inform students about federal aid eligibility and the impact of a private loan.