Paying for College Blog

My Rich Uncle Troubles Continue: First Chapter 7, Now Class Action Lawsuit

As if their troubles could not get any worse, My Rich Uncle, which had filed for a Chapter 7 Bankruptcy in February of 2009, now faces a class action lawsuit.  Here are the details of the complaint filed by Izard Nobel LLP:

The Future of Federal Student Loan Program: Daily Round-Up

Lots of action today to report:

• NASFAA President, Dr. Phil Day, in a letter to the membership today urged financial aid administrators to focus on the historic opportunity to make the Pell Grant a "true entitlement" and to come together to develop a new student loan model:

"If we simply oppose FFELP elimination without offering alternatives or including ourselves in the debate, schools will be forced to move to the Direct Loan program, either because the Obama budget will have been accepted or because ECASLA expires in 2010.

We must move forward in good faith and help design a system that works best for borrowers, taxpayers and institutions. In addition to the importance of providing a workable alternative to the abrupt elimination of FFELP, we must also remember the historic opportunity we have to make the Pell Grant a true entitlement. This is a goal that NASFAA has worked toward for decades, and there are many who never believed we would be so close to seeing this essential change enacted."

2009 SLA Private Loan Series: What Ingredients Go Into the "Secret Sauce"?

One of the big challenges facing borrowers seeking private student loans is figuring out two things:

• Will my application be approved?
• If it is approved, what interest rate will I pay on the loan?  

For those looking for clarity on lender websites to question #1, here is a sampling of what's out there:

• Sallie Mae Smart Option Loan:  "You must meet current credit and other eligibility criteria."
• Wells Fargo Collegiate Loan:  "Have an established, positive credit history, an acceptable debt-to-income ratio, and a minimum income of $12,000 — or a cosigner who does."
• Chase Select Student Loan:  "Chase Select loans are subject to credit approval..."

2009 SLA Private Loan Series: What Is the Meaning of "Instant Credit Response?"

Yes, we have all seen these marketing claims from private student lenders before:

• "Apply now and receive an instant credit decision"
• "Receive a preliminary decision for a loan within minutes of applying online"
• "Easy online application with fast credit decision"

When it comes to the application process, consumers clearly value speed and immediacy when it comes to the credit decisioning.  So, what really does happen after the student borrower and his/her cosigner dot the "i"s and cross the "t"s on their online private loan application?   To what extent do lenders clearly and completely disclose information on interest rates and fees after they conditionally approve a loan? (Note:  The Federal Reserve's Regulation Z includes specifics about items that lenders will be required to disclose upon loan approval)

2009 SLA Private Loan Series: Miss A Payment On Your Private Student Loan, You Could See Your Interest Rate Rise

In perusing promissory notes recently, I came across several lenders who increased the margin on their private loan product when a borrower is in default.  As for what constitutes default, all lenders reviewed include among their default triggers, the following condition, "I fail to make any monthly payment to you when due."  Please note that this post is based on analysis of current promissory notes and may not apply to loans originated in previous years. 

So, what adjustments can lenders make to  interest rates when a default occurs?  Let's go to the videotape, I mean, let's go to the 6 point font of these promissory notes, which has convinced me that reading glasses are not that far off:

From the Trenches: Trends in Private Loans

I received the following update today from a financial aid administrator at a public university:
 

Our 3rd quarter private [loan] approval rates were down about 5% overall from this time last year, with overall private volume down about 35% from this time last year. Only one private lender partner approved over 50% of loan applications, and one lender only approved 15% of applications. These figures and trends certainly don't bode well for students relying on private funding for summer, and consequently then trying to register for fall while still scrounging to get approved for a private student loan to cover a prior year balance.

 

I think the increased undergraduate Stafford borrowing limits and increasing utilization and awareness of Grad PLUS account for a good share of the volume drop (which is great for the borrowers), but approval rates are worrisome since I think "students" are just now starting to truly "feel" the credit crunch in terms of private student lending.

Anyone else have experiences they wish to share? 

2009 SLA Private Loan Series: Does It Make Sense to Shop Around For Private Student Loans?

One shopper's experience certainly suggests it does.  First, the good news is that shopping for student loans (within a 30 day period) has very little risk of adversely impacting your credit score.  Fair Issac, the creators of the FICO score, made the following announcement recently: 

In general, student loan shopping inquiries made during a focused time period (for example, 30 days) will have little to no impact on your score.  In the rare instance in which a credit inquiry related to a student loan is not coded so that it receives our special rate-shopping inquiry logic, that inquiry typically would decrease one’s FICO score by only a few points.

FICO scores are typically one of several inputs that a lender will consider when making a decision on how to price a student loan. 

WSJ: Student Loan Default Rates Are Soaring

Not much new in this story today, except for forbearance policies at for major private lenders.  The story cites the following evidence for the headline, all of which have been cited on this blog previously (see links below):

2009 SLA Private Loan Series: What's the Interest Rate, Chase? (Part Deux)

If you read my earlier post, it takes a minimum of navigating your way through four links on the Chase student loan website to find  the range of interest rates available to private loan borrowers (in case you were curious the range is 3-month LIBOR + 4.75% to 3-month LIBOR +12.25%).  Of course, many borrowers may have stopped on the page titled "Interest Rates" which had the following description:

SLA Guide to Shopping for Private Student Loans in 2009 (Week of April 19th)

This week I will be featuring a series of posts on tips for shopping for a private (or last resort) student loan in 2009.  To provide a consumer's perspective on this topic, I have personally applied as a co-signer for private student loans from seven of the top private student lenders:  Sallie Mae, Citibank, Chase, Wells Fargo, Discover, U.S. Bank and SunTrust.  For those worried that applying for so many loans would ding a credit report, this recent announcement from Fair Isaac opens the door for comparison shopping of private student loans. 

The purpose of this exercise is to provide insights into all phases of finding a private student loan; from application through approval.  Given the poor disclosure practices that continue to plague the industry, this guide is intended to "fill in the gaps" and answer such basic questions as:

• "How do I know what the starting interest rate I will be paying on this loan?"
• "Do lenders basically have the same interest rate and fee structures?"
• "What items should concern me in the promissory note for a specific lender?"