• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

The College Investor

Student Loans, Investing, Building Wealth

  • About
  • Podcast
  • Research
  • Contact
  • Save For College
      • How To Start

      • How To Save For College
      • How To Pay For College
      • What Is the Average Cost of College?
      • What Is A 529 Plan and Where to Open One in Your State
      • How Much Should You Have In A 529 Plan By Age
      • How To Use A 529 Plan For Private Elementary And High School
      • What Are Qualified Expenses For A 529 Plan (And What Doesn’t Count)?
      • The Best Brokers To Open A 529 Plan
      • Tools + Accounts

      • 529 Plans: The Ultimate College Savings Plan
      • 529 Plan Contribution Limits
      • Prepaid Tuition Plans | What To Know
      • Understanding And Using 529A ABLE Accounts
      • Using A Roth IRA To Save And Pay For College
      • FAFSA Deadlines for Financial Aid
      • CollegeBacker Review
      • Upromise Review
      • UNest Review
      • Other Options

      • Student Loan And Financial Aid Programs By State
      • The Guide To Military And VA Education Benefits
      • How To Fill Out The FAFSA
      • How To Find College Scholarships
      • The Best College Scholarship Search Websites
      • How To Find Grants To Pay For College
      • Pell Grants: What They Are And How To Qualify
      • Understanding Federal Work-Study
      • How To Use A 529 Plan If Your Child Doesn’t Go To College
  • Student Loans
      • Borrowing

        • How Student Loans Work
        • How To Apply For A Student Loan
        • How To Find The Best Student Loans And Rates
        • Best Private Student Loans Of June 2022
        • Best Student Loans To Pay For Graduate School
        • Best Student Loans To Pay For Medical School
        • Parent Loans To Pay For College
        • No-Cosigner Student Loan Options
        • Guide To Income Sharing Agreements (ISAs)
        • Best International Student Loans
      • Get Out Of Debt

        • Best Places To Refinance Student Loans In June 2022
        • Best Student Loan Repayment Plans
        • Best Student Loan Refinancing Bonuses And Promotional Offers
        • Student Loan Forgiveness Programs (The Complete List)
        • The Full List Of Student Loan Forgiveness Programs By State
        • Public Service Loan Forgiveness (PSLF)
        • Top Student Loan Scams
        • Average Student Loan Monthly Payment
        • Average Student Loan Debt By Year
      • Reviews

        • Credible Review
        • Splash Review
        • Ascent Review
        • Citizens Bank Review
        • Commonbond Review
        • Earnest Review
        • ELFI Review
        • Laurel Road Review
        • LendKey Review
        • SoFi Review
  • Investing
      • How To Start

        • How To Start Investing in High School
        • How To Start Investing In College
        • How To Start Investing In Your Twenties For 22 – 29 Year Olds
        • How To Start Investing In Your 30s For 30 – 39 Year Olds
        • How To Start Investing With $100 Or Less
        • How To Give Kids The Gift Of Stock
        • What Is Dividend Growth Investing
        • IRA Rollover Chart
      • Tools + Accounts

        • Best Online Stock Brokers
        • The Best Traditional And Roth IRA Accounts
        • The Best Robo-Advisors
        • The Best Investing Apps
        • The Best Places to Trade Options
        • The Best Places To Open A Health Savings Account
        • The Best Solo 401k Providers
        • The Best Self-Directed IRA Providers Of 2022
        • Best Cryptocurrency Exchanges
      • Reviews

        • Vanguard Review
        • Fidelity Review 2022: Still One Of The Best Online Brokers
        • M1 Finance Review
        • TD Ameritrade Review
        • Charles Schwab Review
        • Robinhood Review
        • Webull Review
        • Betterment Review
        • Wealthfront Review
  • Earn More Money
      • Extra Income

        • 15 Best Side Hustles You Can Start Earning With In 2022
        • 53 Side Hustle Ideas To Make Extra Money
        • 100 Ways To Make Money In College
        • 80 Ways To Make Money From Home (In Your Pajamas)
        • 5 Quick Money Making Ideas (That Take Less Than 1 Hour)
        • 10 Interesting Ways You Can Make Money Driving
        • High-Paying Side Gigs That Earn $1,000 or More Per Month
        • The 10 Best Money-Making Apps
        • Paid Surveys: Earn Money For Giving Your Opinion Online
        • 10 Crazy Ways To Make $10,000 You’ve Never Heard Of
      • Build Wealth

        • 35 Passive Income Ideas You Can Use To Build Wealth In 2022
        • 3 Ways To Make $50,000 Per Year Without Working With Passive Income
        • How To Become A Real Estate Investor With Just $500
        • 15 Best Online Business Ideas
        • How to Create Streams of Passive Income on a Limited Budget
        • Residual Income: 7 Super Smart Ways to Build It
        • The Most Common Multiple Income Streams
        • How To Become A Real Estate Mogul With Only $10,000
      • Reviews

        • Fundrise Review
        • RealtyMogul Review
        • FarmTogether Review
        • AcreTrader Review
        • Swagbucks Review
        • Survey Junkie Review
        • TopCashback Review
        • DoorDash Review
  • Personal Finance
      • Banking

        • Best High Yield Savings Accounts Of June 2022
        • 10 Best Money Market Accounts Of June 2022
        • 10 Best Free Checking Accounts In June 2022
        • The Best Bank CD Rates Of June 2022
        • 10 Best Business Checking Accounts In June 2022
        • The Best Online Banks Of June 2022
        • 5 Best Credit Unions Nationwide Of June 2022
        • Best College Student Checking Accounts In June 2022
      • Insurance

        • Best Life Insurance Companies
        • Renters Insurance
        • Car Insurance
        • Pet Insurance
        • Umbrella Insurance
        • Disability Insurance
        • Tuition Insurance
        • Travel Insurance
      • Credit Tools

        • Best Budgeting Apps
        • Cash Advance Apps
        • How To Get A Free Credit Score Report
        • The Best Credit Monitoring Services
        • Debt Settlement: Inside The Secret World
        • Credit Repair Explained: Should You Pay For Help?
        • Best Personal Loan Companies And Lenders
        • Online Loan Companies To Borrow From Home
      • Tax

        • Best Tax Software
        • Free Tax Software
        • IRS Tax Refund Calendar
        • Common IRS Questions and Errors
        • Federal Tax Brackets
        • Capital Gains Tax Brackets
        • 401k Contribution Limits
        • IRA Contribution Limits
        • HSA Contribution Limits
  • Forum
  • Search
Home » Student Loans » How To Protect Against Predatory Lending | What To Watch Out For

How To Protect Against Predatory Lending | What To Watch Out For

Updated: November 2, 2021 By Mark Kantrowitz

Tweet
Share4
Share
Pin18
Email

At The College Investor, we want to help you navigate your finances. To do this, many or all of the products featured here may be from our partners. This doesn’t influence our evaluations or reviews. Our opinions are our own. Learn more here.Advertiser Disclosure

There are thousands of financial products and services out there, and we believe in helping you understand which is best for you, how it works, and will it actually help you achieve your financial goals. We're proud of our content and guidance, and the information we provide is objective, independent, and free.

But we do have to make money to pay our team and keep this website running! Our partners compensate us. TheCollegeInvestor.com has an advertising relationship with some or all of the offers included on this page, which may impact how, where, and in what order products and services may appear. The College Investor does not include all companies or offers available in the marketplace. And our partners can never pay us to guarantee favorable reviews (or even pay for a review of their product to begin with).

For more information and a complete list of our advertising partners, please check out our full Advertising Disclosure. TheCollegeInvestor.com strives to keep its information accurate and up to date. The information in our reviews could be different from what you find when visiting a financial institution, service provider or a specific product's website. All products and services are presented without warranty.

how to protect against predatory lending

Peak borrowing season for new student loans runs during the summer months, June, July and August. But predatory lending can be a problem for some student loan borrowers all throughout the year. 

What exactly is predatory lending? How can borrowers protect themselves from predatory loans? We'll answer those questions and more in this quick guide.

Table of Contents
Definition Of Predatory Lending
Characteristics Of Predatory Loans
How To Protect Against Predatory Lending
1. Consider Alternatives To Borrowing
2. Borrow Federal First
3. Check Your Credit Before Applying For Private Loans
4. Shop Around When Looking For A Loan
Final Thoughts

Definition Of Predatory Lending

The term “predatory lending” is not well defined. Many borrowers use it to refer to loans that have terms that they do not like. But the FDIC defines it as “imposing unfair and abusive loan terms on borrowers.” Typical examples include payday loans and auto title loans. 

Characteristics Of Predatory Loans

The FDIC identifies several characteristics of predatory lending, such as:

  • Abusive collection practices
  • Balloon payments with unrealistic repayment terms
  • High interest rates and fees
  • Fraud, deception and abuse
  • Lending without regard to the borrower’s ability to repay
  • Loan refinancing without economic gain for the borrower
  • Steering borrowers who qualify for lower-cost loans to higher-cost financing
  • Mandatory arbitration clauses
  • Prepayment penalties that may trap borrowers in high-cost loans
  • Credit insurance that is added to the total loan amount and increases the total interest paid

Some of these characteristics apply to student loans and some don't. For example, federal and private student loans don't have prepayment penalties, as a matter of law. But families borrowing to pay for college may encounter non-education loans that have these characteristics. 

Other characteristics of predatory loans include:

  • Aggressive sales tactics
  • Lending to vulnerable borrowers who lack financial literacy
  • Inadequate and misleading disclosures
  • Discriminatory pricing
  • Negative amortization
  • Capitalized interest
  • High default rates

Federal and private student loans share some of these characteristics. So even legitimate loans aren’t perfect. Also, federal student loans aren't subject to the defense of infancy or statutes of limitation. 

Both federal and private student loans are made to traditional students. And some lack the financial sophistication to fully understand the consequences of borrowing to pay for college.

How To Protect Against Predatory Lending

Here are four steps you can take to safeguard yourself from unfair loan terms.

1. Consider Alternatives To Borrowing

Apply for grants and scholarships, which do not need to be repaid. Consider tuition installment plans, which spread out the college costs over less than a year and don’t charge interest. You may also want to get a part-time job to earn some money to pay college bills.

Borrow as little as you need, not as much as you can. The idea is to live like a student while you’re in school, so that you don’t have to live like a student after you graduate. 

2. Borrow Federal First

Federal student loans have low fixed interest rates and flexible repayment terms. They also offer a variety of benefits (some of which private loans can't match). These include federal deferments and forbearances, death and disability discharges, income-driven repayment and loan forgiveness options.

3. Check Your Credit Before Applying For Private Loans

You can check your credit reports for free at AnnualCreditReport.com. Errors can affect your ability to qualify for a loan and the interest rate you’ll pay if you do qualify. Correct any errors by disputing them. 

Do so at least 30 days before you apply for a private student loan as it can take a month for errors to be removed from your credit reports.

4. Shop Around When Looking For A Loan

Most borrowers focus on finding the lowest-cost loan. And that's a great starting point. But other terms that may be of interest include the quality of customer service (e.g., does the lender offer evening and weekend call center hours) and the availability of loan discounts (e.g., autopay discounts, good grades discounts, graduation discounts).

When comparing student loans, borrowers should consider both the monthly loan payments and the total payments over the term of the loan. A lower monthly loan payment may involve paying a lot more over the life of the loan.

A loan’s APR combines the impact of the interest rate, loan fees and repayment term. A higher APR is a more expensive loan. Borrowers should be more careful when a loan’s APR is in the double digits. For example, a 16% interest rate on a 10-year repayment term means that the borrower will pay more in interest than the amount borrowed. For a 20-year term, an interest rate of 8% or more means paying back more than double the amount borrowed.

Another bad sign is when a loan requires more than a 10-year repayment term for the monthly loan payments to be affordable. That’s generally a sign that you borrowed too much or that the loan is too expensive.

Final Thoughts

Ultimately, the best way to protect yourself against predatory lending is to become financially literate. This will help you understand how interest rates, fees and loans work so that you can make smarter borrowing decisions.

Be sure to read The College Investor's student loan guide. Your school may also offer free courses on how to pay for your education in a financially responsible way. Finally, you can find a wealth of financial tools such as calculators, budget worksheets, and planning checklists on MyMoney.gov.

Mark Kantrowitz
Mark Kantrowitz

Mark Kantrowitz is an expert on student financial aid, scholarships, 529 plans, and student loans. He has been quoted in more than 10,000 newspaper and magazine articles about college admissions and financial aid. Mark has written for the New York Times, Wall Street Journal, Washington Post, Reuters, U.S. News & World Report, MarketWatch, Money Magazine, Forbes, Newsweek, and Time. You can find his work on Student Aid Policy here.

Mark is the author of five bestselling books about scholarships and financial aid and holds seven patents. Mark serves on the editorial board of the Journal of Student Financial Aid, the editorial advisory board of Bottom Line/Personal, and is a member of the board of trustees of the Center for Excellence in Education. He previously served as a member of the board of directors of the National Scholarship Providers Association. Mark has two Bachelor’s degrees in mathematics and philosophy from the Massachusetts Institute of Technology (MIT) and a Master’s degree in computer science from Carnegie Mellon University (CMU).

How To Protect Against Predatory Lending | What To Watch Out For
Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, or other advertiser and have not been reviewed, approved or otherwise endorsed by any of these entities.
Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors'. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone's responsibility to ensure all posts and/or questions are answered.
Subscribe
Connect with
I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree
Notify of
I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree
1 Comment
Oldest
Newest Most Voted
Inline Feedbacks
View all comments

Primary Sidebar

Featured Lender Reviews

>  Credible (recommended)
>  Splash (recommended)
>  ELFI
>  Commonbond
>  LendKey
>  Earnest
>  Laurel Road

More On Student Loans

  • Best Private Student Loans Of June 2022
  • Top Student Loan Scams
  • How To Find The Best Student Loans And Rates
  • Best Places To Refinance Student Loans In June 2022
  • Best Student Loan Refinancing Bonuses And Promotional Offers
  • Student Loan Forgiveness Programs (The Complete List)
  • Student Loan And Financial Aid Programs By State

Footer

Who We Are

The College Investor is an independent, advertising-supported publisher of financial content, including news, product reviews, and comparisons.

Connect

  • Contact Us
  • Advertise
  • Press & Media

About

  • About
  • Our Team
  • Podcast
  • Editorial Guidelines
  • How We Make Money
  • Archives

Social

Copyright © 2022 · The College Investor · Privacy Policy ·Terms of Service · DO NOT Sell My Personal Information

wpDiscuz