In contrast with federal subsidized loans, interest accrues while the student is in college, even if repayment does not begin until after graduation.
Fees vary greatly, and legal cases have reported collection charges reaching 50% of amount of the loan.
[further explanation needed] The underwriting decision is complicated by the fact that students often do not have a credit history that would indicate creditworthiness.
School-channel loans offer borrowers lower interest rates, but generally take longer to process.
The "certification" means only that the school confirms the loan funds will be used for educational expenses only and agrees to hold them and disburse them as needed.
Some private loans require substantial up-front origination fees ("points") along with lower interest rates.
Many lenders advertise only the lowest interest rate they charge (for good credit borrowers).
[7] All lenders are legally required to provide a statement of the annual percentage rate (APR) prior to closure.
Applying to multiple lenders (to create a comparison) can damage the borrower's credit score.
[13] In 2007, the then-Attorney General of New York State, Andrew Cuomo, led an investigation into lending practices and anti-competitive relationships between student lenders and universities.
The False Claims Suit was filed on behalf of the federal government by former Department of Education researcher, Dr. Jon Oberg, against Sallie Mae, Nelnet, and other lenders.
Oberg argued that the lenders overcharged the U.S. Government and defrauded taxpayers of millions of dollars.
In 2011, The New York Times published an editorial endorsing the return of bankruptcy protections for private student loans in response to the economic downturn and universally increasing tuition at all colleges and graduate institutions.
[18] A 2014 report from Consumer Financial Protection Bureau (CFPB), shows a rising problem with these types of loans.
A number of financial institutions offer private student loans, including banks like Wells Fargo, and specialized companies.
[21] As the economy collapsed in 2008-2011, many players withdrew from the private student loan lending world.