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					  FTC Facts                                                                   Federal Trade Commission

  For Consumers                                                               For The Consumer


                                                                              www.ftc.gov     1-877-ftc-help
June 2008




Student Loans: Avoiding Deceptive Offers
            A joint publication of the Federal Trade Commission and the U.S. Department of Education



A    n education beyond high school is an
      investment in your future. It can be expensive
and often requires you or your family to take out
                                                          student loans, want you to know how to spot
                                                          potentially deceptive claims or business practices
                                                          some private companies may use to get your loan
loans to help pay for it.                                 business.
    Student loans fall into two categories, federal
loans and private loans.                                  Private Loans
                                                          Private companies may offer you loans and other
 n   Federal loans, which are subject to oversight and    forms of financial assistance for your education.
     regulation by the federal government, include:       They often use direct mail marketing, telemarketing,
     — Direct Loans, where the U.S. Department of         television, radio, and online advertising to promote
       Education is the lender;                           their products.
     — Federal Family Education Loans (FFEL),                  Paying for your education is a serious long-term
       where private lenders make loans backed by         financial obligation; that’s why comparing the costs
       the federal government; and                        of different ways of financing your education is so
                                                          important. Private loans tend to have higher fees and
     — Federal Perkins Loans.
                                                          interest rates than federal government loans. Private
 n   Private loans, sometimes referenced as “alterna-     loans also do not offer the opportunities for cancel-
     tive loans,” are offered by private lenders and do   lation or loan forgiveness that are available on many
     not include the benefits and protections available   federal loan programs. So it makes good financial
     with federal loans.                                  sense to exhaust your federal loan options (as well
    Whether you’re taking out a new student loan or       as grants and scholarships) before considering loans
consolidating existing education loans, the Federal       from any private companies. To learn more about
Trade Commission (FTC), the nation’s consumer             federal government loans, visit
protection agency, and the U.S. Department of             www.FederalStudentAid.ed.gov.
Education (ED), the agency that oversees federal
2 FTC Facts For Consumers


How to Spot Deceptive                                          agency (www.consumeraction.gov), and the
Private Student Loan                                           Better Business Bureau (www.bbb.org).
Practices
If you are considering a private student loan, it’s       Special Considerations
important to know whom you’re doing business with         for Consolidation of
and the terms of the loan. The FTC and ED offer           Federal Loans
these tips to help you recognize questionable claims      Student loan consolidation is combining several
and practices related to private student loans.           loans into one with a new repayment term and inter-
                                                          est rate. This is generally offered in connection with
 n   Some private lenders and their marketers use         federal loans. Here’s how to help identify potential
     names, seals, logos, or other representations        problems related to loan consolidation:
     similar to those of government agencies to create
     the false or misleading impression that they are
                                                           n   Avoid lenders and marketers who use high-pres-
     part of or affiliated with the federal government         sure sales tactics. Some marketers pitch that
     and its student loan programs.                            “your interest rates may go up if you do not con-
                                                               solidate immediately!” Whether and when inter-
 n   ED does not send advertisements or mailers, or
                                                               est rates for consolidating your loans will change
     otherwise solicit consumers to borrow money. If
                                                               depends on what type of loans you have. Look at
     you receive a student loan solicitation, it is not
                                                               your loan documents to determine whether the
     from ED.
                                                               interest rates are fixed or variable:
 n   Don’t let promotions or incentives like gift
                                                               — If all of your education loans have fixed
     cards, credit cards, and sweepstakes prizes divert
                                                                 interest rates, there may be no deadline to
     you from assessing whether the key terms of the
                                                                 consolidate.
     loan are reasonable.
 n Don’t give out personal information on the              — If some or all of your loans have variable
   phone, through the mail, or over the Internet              interest rates, when you consolidate into a
   unless you know with whom you are dealing.                 fixed loan it may affect the interest rate of
   Private student lenders typically ask for your             your loan. ED publishes new variable rates for
   student account number — often your Social                 some federal loans each July 1st. The annual
   Security number (SSN) or Personal Identifica-              rate changes can raise or lower the interest rate
   tion Number (PIN) — saying they need it to                 offered on a consolidated loan because the
   help determine your eligibility. However, because          consolidation interest rate will be the weighted
   scam artists who purport to be private student             average of all loans consolidated.
   lenders can misuse this information, it is critical     Whether or not you have a targeted timeframe,
   to provide it or other personal information only take your time to determine whether consolidating is
   if you have confidence in the private student       right for you.
   lender with whom you are dealing.
                                                         n Some lenders impose restrictions on promised
 n Check out the track record of particular private
                                                           discounts. Some may disclose these limits only
   student lenders with your state Attorney General        in the fine print. Read the fine print in your loan
   (www.naag.org), your local consumer protection          documents to find these types of conditions:
                                                                         FTC Facts For Consumers 


    — Some lenders lower the interest rate on your        For More Information or
      consolidated loan, but only if you opt for          to File a Complaint
      automated payments from your checking               To learn about federal student loans, write the U.S.
      account.                                            Department of Education at:
                                                              U.S. Department of Education
    — Other lenders discount the interest rate on
                                                              Federal Student Aid Information Center
      your consolidated loan, but only if your loan
                                                              P.O. Box 84
      has at least a specified minimum loan balance.
                                                              Washington, DC 20044-0084
    — Still others agree to lower the interest rate on        800-4-FED-AID (TTY: 800-730-8913)
      your consolidated loan, but only if you remain          www.FederalStudentAid.ed.gov
      current on your payments for the life of the
      loan. You may want to consider loans with              Notify the Federal Student Aid Ombudsman at
      more immediate discounts, a shorter on-time         1-877-557-2575 or www.ombudsman.ed.gov if you
      payment period for interest rate discounts,         have a complaint that you cannot resolve with
      or an additional discount for signing up for        your lender.
      automatic payments.                                     For questions about a particular lender, contact
n   Some lenders sell consolidated loans to other         the federal agency with jurisdiction over that lender:
    companies. Because benefits of consolidated           Office of the Comptroller of the Currency
    loans — like promised discounts — may not             Regulates banks with “national” in the name or
    transfer, you may lose benefits if the lender sells   “N.A.” after the name:
    your loan. Ask the lender whether the terms of           Office of the Ombudsman
    your loan will change if it is sold.                     Customer Assistance Group
n   Be cautious about consolidating federal loans            1301 McKinney Street, Suite 3450
    and private loans into one private loan. The             Houston, TX 77010
    result of consolidating all loans into one non-          800-613-6743 toll-free
    federal private loan means that you lose all the         www.occ.treas.gov
    benefits and protections provided in the federal
    loan programs.                                        Board of Governors of the Federal Reserve
                                                          System
n   Consolidating a Perkins loan may not be in
                                                          Regulates state-chartered banks that are members of
    your best interest. You may lose unique
                                                          the Federal Reserve System, bank holding
    deferment and cancellation rights available to
                                                          companies, and branches of foreign banks:
    Perkins loan borrowers. For more
                                                              Federal Reserve Consumer Help
    information about these rights go to
                                                              PO Box 1200
    http://www.ed.gov/offices/OSFAP/DCS/perkins.
                                                              Minneapolis, MN 55480
    deferment.cancellation.html.
                                                              888-851-1920 (TTY: 877-766-8533) toll-free
n   Frequent consolidation after borrowing may                ConsumerHelp@FederalReserve.gov
    impact timelines you need to meet to qualify for
    these benefits.
 FTC Facts For Consumers



Federal Deposit Insurance Corporation                           The FTC works for the consumer to prevent
Regulates state-chartered banks that are not               fraudulent, deceptive, and unfair business prac-
members of the Federal Reserve System:                     tices in the marketplace and to provide informa-
   Division of Supervision & Consumer Protection           tion to help consumers spot, stop, and avoid
   550 17th Street, NW                                     them. To file a complaint or to get free infor-
   Washington, DC 20429                                    mation on consumer issues, visit ftc.gov or call
   877-ASK-FDIC (275-3342) toll-free                       toll-free, 1-877-FTC-HELP (382-4357); TTY:
   www.fdic.gov                                            1-866-653-4261. The FTC enters Internet, tele-
                                                           marketing, identity theft, and other fraud-related
National Credit Union Administration                       complaints into Consumer Sentinel, a secure online
Regulates federally chartered credit unions:               database available to hundreds of civil and criminal
   Office of Public and Congressional Affairs              law enforcement agencies in the U.S. and abroad.
   1775 Duke Street
                                                               Federal Student Aid, an office of the U.S.
   Alexandria, VA 22314-3428
                                                           Department of Education, administers the federal
   703-518-6330
                                                           student financial aid — grants, loans, and work-
   www.ncua.gov
                                                           study programs — available for education beyond
                                                           high school. Federal Student Aid interacts with
Office of Thrift Supervision
                                                           postsecondary schools, financial institutions and
Regulates federal savings and loan associations and
                                                           other participants in the student aid programs to
federal savings banks:
                                                           deliver services that help students and families plan
    Consumer Programs
                                                           and pay for college.
    1700 G Street, NW
    Washington, DC 20552                                      To learn more about Federal Student
    800-842-6929 toll-free                                 Aid and how to pay for college, visit
    www.ots.treas.gov                                      www.FederalStudentAid.ed.gov or call
                                                           1-800-4-FED-AID.
Federal Trade Commission                                       The Federal Student Aid Ombudsman is avail-
Regulates non-bank lenders:                                able to individuals with specific complaints. To
   Consumer Response Center                                learn more about the Ombudsman, visit
   600 Pennsylvania Avenue, NW                             www.ombudsman.ed.gov or call 1-877-557-2575.
   Washington, DC 20580
   877-FTC-HELP (382-4357) toll-free
   www.ftc.gov




                                              Federal Trade Commission
                                           Bureau of Consumer Protection
                                    Division of Consumer and Business Education

                           For The Consumer                Federal Trade Commission
                                www.ftc.gov                1-877-ftc-help

				
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