(Sacramento, CA) – Some private lenders are trapping college students and their families into high-cost student loans, according to 'Student Loans for Higher Education,' a California Research Bureau (CRB) report commissioned by Assembly Speaker pro Tempore Sally Lieber.

"Middle class families are being victimized by private student loans that can only be called predatory," Lieber said.  "Families of high school seniors are bombarded by private offers that may or may not be in their best interest.  Federal and state government has the responsibility to provide real consumer protections against unscrupulous lenders and abusive loans."

The report finds that practices in the student loan industry are ensnaring some students and their families into insurmountable debt.  Even worse, under federal law, students and their families cannot discharge student loan debt, even if individuals file for bankruptcy.

Some banks and other private lenders aggressively market loans at much higher rates than federal student loans.  Some of these loans include variable rates that escalate like adjustable-rate mortgages, as wells as daily-compounding interest that begins while the students are still in school.  Further, some private postsecondary educational institutions, particularly those that are for-profit, may still accept fees from lenders to guide students towards more costly loans.

"Students and families should research all the options before borrowing from private lenders, or consider avoiding private student loans entirely," Lieber said.  "Federally subsidized or guaranteed loans are the safest bet for students and their families."

The report finds that federally-subsidized and federally-guaranteed student loans remain affordable and readily available for many students and their families who need to borrow in order to reach educational goals.  Finally, Congress has acted to limit interest rates and loan repayment terms for these public loans.

California’s public universities have not been implicated in the national student loan scandal, according to the report.  Nonetheless, California public universities are working to create stronger protections against lender abuse. 

The report is available online at www.library.ca.gov/crb/08/08-002.pdf.