Guidance in the private loan market

Congress should relax the law causing colleges to leave students without loan recommendations.

With the high cost of attaining a college education, students and families that rely on loans to pay for tuition each year are always looking for lenders that offer affordable, borrower-friendly terms.

Stafford loans, which are a part of the federal government’s financial aid package for students, are the most generous, but they often don’t cover the entire cost of a semester. In many cases, students who have maxed out their Stafford loans may need to take out private loans, which numerous banks and companies give out, such as Sallie Mae and Discover.

Knowing where to look and figuring out which private loan option provides the best terms can be a daunting task, even for those who are more financially literate.  

The colleges and universities themselves are potential sources of trustworthy information about private lenders, providing recommendations to students and parents about where to take out private loans. However, because of provision in a 2010 law, colleges often don’t recommend any lenders at all, Minnesota Public Radio reported Feb. 6. Because college administrators are required to vet private lenders before making recommendations to students, many schools choose not to recommend lenders at all. This unintended consequence of a well-intentioned federal regulation leaves many students on their own in the private lender market, with little knowledge and no guidance.

Students at the University of Minnesota are fortunate to have FastChoice, a University-sponsored tool that offers students a selection of private loan lenders based on set criteria.

But many students at other colleges and universities aren’t so lucky. In order to increase financial literacy and provide much-needed guidance to students and families, Congress should relax its cumbersome vetting regulations so that college officials are more willing to provide private lender recommendations.