Mallory Rego, the first member of her family to attend college, says she now sees that she put too much blind faith in the power of education.  After graduating in 2008 from Emmanuel College, a liberal arts school in Boston, she enrolled in a graduate program nearby that would have certified her to help children cope when undergoing stressful medical treatments.  But she had to drop out midway to earning her graduate degree: Although her federal loans were deferred, her private student debts came due while she was still in school and, she said, she couldn’t afford those payments, plus her rent and books. She now owes $220,000 — largely in private loans — works in a yogurt shop and is paid to drive an autistic child to and from school.  When she was up for a promotion from bank teller about a year ago, the offer was rescinded, she said, because of her messy credit history.  “College seemed like my ticket to success, so the large sums I was borrowing seemed like a problem for future, educated, richer Mallory to deal with,” said Ms. Rego, now 29, who graduated with a bachelor’s degree in psychology and is now living with her mother and siblings in Hamden, Conn. “I don’t pretend,” she added, “that I didn’t get myself into this mess.”  Many student borrowers often accept the financial aid packages set before them, which may include piles of private loans that cover what federal loans do not. But students often do not realize that private loans can cost more and come with few escape valves if they can’t afford their payments. Their parents and relatives aren’t always aware of the consequences, either. Yet when they co-sign the loans — and roughly 90 percent of private loans have co-signers — they are fully liable.  That is why when a borrower runs into financial trouble, the problems can quickly escalate into a family affair, and, in extreme cases, a legal one. Some borrowers I spoke with said their co-signers panicked when they realized that the graduate’s earnings prospects were bleak, so the co-signers (typically relatives who were not parents) sued the student, claiming fraud.  “I can’t tell you how many borrowers told me about the real tension that was created when their lender refused to negotiate with them,” said Rohit Chopra, the student loan ombudsman at the Consumer Financial Protection Bureau until June, and now a senior fellow at the Center for American Progress. “Now, all of a sudden, their parents and grandparents were being called, and it became a discussion at Thanksgiving.”  Unlike federal loans, which typically have built-in protections for distressed borrowers, including income-based repayment and forgiveness programs, private loan borrowers are at the mercy of their lenders, whose terms for relief may be opaque or change every time you call customer service. (Like federal loans, private student debt is not automatically discharged in bankruptcy. Borrowers must file a separate suit proving undue hardship.)  Private loans represent only an estimated 7 to 10 percent of the $1.27 trillion student debt outstanding, but new loans are on the rise. Lenders made $6.7 billion in new private loans in the 2014-15 academic year, according to MeasureOne, which analyzes data from six lenders and holders of private loans, which collectively represent about 71 percent of all outstanding loans. That is up about 14 percent from $5.87 billion in 2009-10.  “The cost of college has gotten so outrageous that people are relying on these loans more, sometimes just to afford a state college,” said Natalia Abrams, executive director at Student Debt Crisis, an advocacy group.  The Consumer Financial Protection Bureau has been collecting consumer complaints on private student loans for three years, and it has found that borrowers are often hitting roadblocks when they seek help. But the regulatory pressure seems to have prompted some lenders to improve certain policies, at least outwardly. Only time will tell if any changes go far enough to make a meaningful difference in borrowers’ lives.  In the meantime, the bureau continues to collect grievances, which should serve as a flashing “buyer beware” sign for prospective borrowers and co-signers. In a 2014 report from Mr. Chopra, then at the consumer bureau, many borrowers complained that they were often rebuffed when they asked lenders for help.  Christopher (he spoke on the condition of not using his last name), who graduated in 2012 from Rutgers University with a degree in political science, had a similar experience. Since he has been unable to find a lucrative job, he easily deferred his federal debts. But his private lenders, to which he owes about $90,000, wouldn’t budge; he defaulted, and his lender sued.  “They would not accept anything less than the full amount and harassed me when I did not make full payments with multiple phone calls a day,” said Christopher, now 25, who is working in a warehouse, making $13 an hour, and living with his mother.  Then there are the borrowers who have become ensnared by traps buried in the fine print. Some loans include provisions that allow them to put the loan in default if the borrower was late on an unrelated bill held by the same lender, among other things. In other contracts, even if borrowers are current on their payments, their loans can be thrown into default (and become immediately due in full) if a co-signer files for bankruptcy or dies, according to the consumer bureau.  Several of the largest private lenders say they don’t engage in these practices, but regulators contend that the issue still arises on loans that have been packaged and sold to investors. “No matter what some lenders say, the companies servicing loans after they’ve been sold may claim that they will be liable to bondholders if they don’t follow the terms of these contracts,” said Seth Frotman, acting student loan ombudsman at the Consumer Financial Protection Bureau.  There are signs of improvement. Citizens Bank said it planned to start loan modifications soon, and Wells Fargo started modifying loans at the end of last year. Of the 194 loans it modified, it reduced payments 30 percent, on average, largely by reducing interest rates by about 6 percentage points. The lender, with $12 billion in private loans outstanding, may reduce the rate temporarily or permanently.  Navient, which services student loans and has offered modifications since 2009, said about $2 billion in private loans were enrolled in an interest rate reduction plan, or about 7 percent of its $28 billion portfolio.  Sallie Mae, which already modifies loans, also started offering a graduated repayment plan for graduates with loans made after July 1, 2013. After the six-month grace period, borrowers can make 12 interest-only payments to help lower their monthly bill.  Kristin Riopelle left the University of New Hampshire in 2012 with a bachelor’s degree in theater, a minor in business and $95,000 in private loans. But she has been able to take advantage of those types of programs, even if some lenders were difficult to work with. She made interest-only payments for two years on one loan, and on another, she was able to make payments that gradually increased.  But her salary as an administrative assistant still doesn’t quite cover all of her monthly payments, so her father pays about $200 on one loan, which he co-signed. She recently consolidated most of her private loans at Citizens Bank, which she said would keep her payments steady over 20 years.  She still needed a co-signer. “My mom isn’t too happy with that, since it affects her credit, too,” said Ms. Riopelle, 25.  And that is another problem. Some banks advertise that co-signers can be released after the borrower makes a certain number of payments, among other things. But that has proved challenging: About 90 percent of borrowers who make the request are rejected, according to a report in June from regulators.  “Many co-signers incorrectly think of co-signing as the equivalent of providing a reference,” said Mark Kantrowitz, publisher of Edvisors.com, which provides advice about paying for college. “They don’t realize the loan is their loan. At least, not until they try to refinance their mortgage, only to have the lender refuse because they have too much debt.”  His advice for distressed borrowers? When you call the lender and explain your situation, don’t ask for a specific form of relief, but ask about all available options, some of which might be a better match. Be prepared to provide the call center staff with copies of documentation of your circumstances and detailed financial statements.  But the best advice may be to take fewer private loans to begin with. Nearly half, or 47 percent, of student borrowers in the 2011-2012 academic year didn’t exhaust their federal loan options before seeking private loans, according to the Institute for College Access and Success. “If you are deciding where to go to school and you get a financial offer that includes private loans or you are encouraged to take them,” said Lauren Asher, director of the institute, “keep looking.”  A version of this article appears in print on September 5, 2015, on page B1 of the New York edition with the headline: The Many Pitfalls of Private Student Loans. Order Reprints| Today's Paper|Subscribe
Federal loans for education often offer options to ease onerous repayment terms. Not so with private loans, as some borrowers have learned to their dismay.