Don't get hijacked by high student-loan costs

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April 9, 2008

By STEPHEN BARTLETT The Press Republican Wed Apr 09, 2008, 12:00 AM EDT

PLATTSBURGH -- A student loan was once considered a junior mortgage.

Today, the price can be far greater.

"There are decisions you are making now that will be alive for the rest of your life," said John Maggiore, a policy adviser for New York State Attorney General Andrew Cuomo's office. "One decision is what school you will go to and how you will pay for it."

Maggiore offered advice to Plattsburgh High School students, cautioning them against misleading private loans and encouraging them to ask questions when figuring out how to pay for higher education.

PREFERRED LENDERS

Maggiore started by asking how many students planned to apply to college, following by pointing out that higher-priced private colleges can cost as much as $50,000 a year.

"Roughly 90 percent of students who took out loans took them from their college's preferred-lenders list," he said.

The problem is that an investigation by Cuomo's office revealed that some colleges weren't placing lenders on the list principally because the loans were in the best interest of students. Colleges often failed to examine which lenders were offering loans with students' best interests in mind.

"Students were being told this is the preferred lenders," Maggiore said. "But not for students -- it was a preferred lender for the school because they get a kickback."

New York state officials met with representatives of colleges that appeared to have a conflict of interest with lenders and hammered out a code of conduct that has since become law. It prohibits practices such as lenders giving colleges anything of value.

"We are trying to get it passed nationally," Maggiore said.

USE CAUTION

Maggiore stressed that Cuomo's office was not trying to convey financial aid is a bad resource.

"The overwhelming number of people who work in the financial-aid office are good people, and you should go to them, but just go to them armed with questions."

The state investigation is now targeting direct-marketing companies hired by lenders to go after students.

"Some lenders bypass financial aid and are going to you now," Maggiore said. "Beware of materials that create the impression they are from the government or college."

DO RESEARCH

He urged students to avoid loan promotions that don't suggest the recipient exhaust all federal and state resources first.

Some lenders offer incentives, like Ipods, but the cost of the free gift is minuscule compared to interest earned from student loans.

Organizations such as the Better Business Bureau can provide information on whether companies have complaints filed against them.

Student loans can be researched through the Internet, banks and guidance and financial-aid offices.

"You have the right to ask as many questions as you want from someone who is going to loan you money," Maggiore said.

Besides state and federal grants and loans, students should research the availability of scholarships, Maggiore said.

"You have a right to explore your options. Commercial loans are the last choice when paying for school, and there is no more important research project you have in front of you right now."

sbartlett@pressrepublican.com

STUDENT RIGHTS
The Student Bill of Rights, as detailed by the New York State Attorney General's Office:
E The right to unbiased advice about loans and lenders of financial aid.
E The right to choose the lender that is best, even if that lender is not included on a school's preferred-lender list.
E The right to know what criteria a school uses to select preferred lenders and whether preferred lenders are paying the school or financial-aid officials.
E The right to know what benefits or rate discounts lenders offer and whether those will be available immediately or only after a certain number of consecutive timely payments.
E The right to know if a lender has agreed to sell its loans to another lender.
E The right to know whether borrower benefits and discounts will continue if the loan is sold.
E The right to know what interest rate you will be paying for the loan before you borrow.
E The right to exhaust your federal borrowing options before turning to higher-cost private loans.

WHAT TO ASK
Some questions to ask financial aid and lenders:
E What percentage of borrowers actually receive the borrower benefits or rate discounts that are contingent on a certain number of timely payments?
E How many students actually receive a preferred lender's advertised "as low as" interest rate?
E When will repayment begin, and will interest accrue while I'm in school?
E What is the total amount I will need to pay over the life of the loan, and what will my monthly payments be?
E How long is the repayment period for the loan, and is there a penalty for paying back the loan before the end of that period?
E What are the penalties for missing monthly payments?