Experts caution buyer beware on private student loans

A complex web of ownership means it’s not always clear what or who students really owe.

As a special education math teacher, Lindsey Scheman knows her way around numbers.

Scheman says looking through her student loan payments just doesn’t add up. She’s saddled with $120,000 in debt – $50,000 of which was loaned through NJCLASS, privately held loans with the New Jersey Higher Education Student Assistance Authority.

“And since I’ve been paying them, since I graduated in 2009, and I think right now it’s at $42,000. So I’ve paid about $22,000 and they’ve only gone down about $8,000,” Scheman said.

Scheman is one of the 44 million Americans who owe a total of $1.4 trillion in student loan debt. She also holds federal and Sallie Mae loans. And, as she notes, most of her payments go to interest, not the principal. That’s because private lenders can lock you in at a higher, fixed rate.

“So this is just in the last two years, it’s only gone down about $1,500 and I’ve paid $360 a month for two years,” said Scheman.

Jack Gattanella has over $100,000 in student loans from Nelnet and Sallie Mae.

“I feel like I’m in a hole for much of my life because of the interest,” he said.

A report by the Institute for College Access and Success shows New Jersey students hold the country’s eleventh highest amount in student debt.

“To be honest, it really gets so confusing trying to figure everything out as far as how to pay back the lenders,” Gattanella said.

That tangled bureaucratic web is in the spotlight right now. It recently lead to a blunder in the loan industry when a conglomeration of 15 trusts holding 800,000 private student loans tried to sue debt holders for defaulting on payments.

“What happened was all the original paperwork that created those loans in the first place got lost or misplaced or fraudulently done one way or another. And so now, when they sue the graduates who don’t pay loans, they say, well, prove that I actually owe it. And they can’t do it because they don’t have the original paperwork,” personal finance expert Jordan Goodman said.

Right now, $5 billion in those loans are being disputed and could be wiped away.

Experts recommend refinancing and consolidating loans where possible.

“You have to be very, very careful when you’re not using a government backed loan because these private loan companies tend to not be so scrupulous in their practices,” Paul Oster, CEO of Better Qualified, a credit services company, said.

For Scheman, her student loan debt has had long-lasting effects.

“Because my credit is so good, I could probably get a mortgage at a really low rate, I could probably get a car loan at a really good rate. But because of my high payments every month, I have to lease a car, I can’t buy a car. I have to rent, I can’t buy a house. Because what it might seem like I could afford, with my good credit and the money I make the amount of money I pay out each month to student loans is way more than I make,” Scheman said.

Unlike most products, these private loans didn’t come with a buyer beware.