Educational Consumer Tips

Student Loans and Consolidation

Author: Better Business Bureau
Category: Finance

Federal loans, which are subject to oversight and regulation by the federal government, include:

o   Direct Loans: the U.S. Department of Education is the lender; 
o   Federal Family Education Loans (FFEL): private lenders make loans backed by the federal government;
o   Federal Perkins Loans. 

Private loans, sometimes referenced as “alternative loans,” are offered by private lenders and do not include the benefits and protections available with federal loans.  Private loans tend to have higher fees and interest rates than federal government loans.  Private loans also do not offer the opportunities for cancellation or loan forgiveness that are available on many federal loan programs. Therefore, it is in the best interest of the consumer to utilize as many federal student loan options as possible before seeking private loans.

Buyer beware of private loans:

•         Some private lenders and their marketers use names, seals, logos, or other representations similar to those of government agencies to create the false or misleading impression that they are part of or affiliated with the federal government and its student loan programs.  Beware of incentives that may divert the consumer’s attention from the loan terms.

•         The Department of Education does not send advertisements or mailers, or otherwise solicit consumers to borrow money.  If you receive an advertisement or mailer, it did not come from the Department of Education.

•         Private student lenders typically ask for your student account number , Social Security number (SSN) or Personal Identification Number (PIN) — saying they need it to help determine your eligibility. However, because scam artists who purport to be private student lenders can misuse this information, it is critical to provide it or other personal information only if you have confidence in the private student lender with whom you are dealing.

•         Be cautious about consolidating federal loans and private loans into one private loan. The result of consolidating all loans into one nonfederal private loan means that you lose all the benefits and
protections provided in the federal loan programs.  Federal student loans can be consolidated directly with the Department of Education.

•         Consolidating a Perkins loan may not be in your best interest. You may lose unique deferment and cancellation rights available to Perkins loan borrowers. For more information about these rights go

•         Certain circumstances might lead to your loans being forgiven, canceled, or discharged; including: Total and Permanent Disability (TPD) Discharge, Death Discharge, Discharge in Bankruptcy, Closed School Discharge, False Certification of Student Eligibility or Unauthorized Payment Discharge, Public Service/Teacher loan forgiveness.

•          Never ignore delinquency or default notices from your loan servicer.  Contact your servicer immediately if you are having trouble making payments or won't be able to pay on time. 

To learn about student loans, contact: 

U.S. Department of Education
Federal Student Aid Information Center
P.O. Box 84
Washington, DC 20044-0084
800-4-FED-AID (TTY: 800-730-8913)


Consumer Financial Protection Bureau
P.O. Box 4503
Iowa City, IA 52244
(855) 411-2372
Website: http://www.consumerfinance.govl


Office of the Attorney General
PO Box 944255
Sacramento, CA 94244-2550
(800) 952-5225