Paying for College Blog

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?"

2009 Private Loan Series: Sallie Mae Smart Option Tightens Underwriting Process, Including a Manual Credit Review

I recently applied for a Sallie Mae Smart Option loan as a co-signer for my nephew.  Going through this process highlighted several differences in how Sallie Mae is underwriting and processing these loans compared to other private student loan lenders. 

Borrower's Application
First on the application front, there were several unique questions that Sallie Mae asked prospective student borrowers:

• Have you ever defaulted on an education loan?
• Current outstanding student loans for Federal loans
• Current outstanding student loans for Non-Federal/Private loans
• Grade point average

U.S. Student Association Provides Views on Federal Student Loan Debate

I was just thinking about this over the weekend.  One voice that had been notably absent in the debate regarding the future direction of the federal student loan program has been that of students. 

Well, here is a Letter to the Editor that appeared in the Washington Post on Monday from the President of the U.S. Student Association, which describes itself as "the country's oldest and largest national student-led organization, develops current and future leaders and amplifies the student voice at the local, state, and national levels by mobilizing grassroots power to win concrete victories on student issues:"

Struggling With Student Loan Repayment? Advice from NY Times

NY Times article today highlighted several student loan borrowers struggling with repayment as well as cohort default trends recently released by the Department of Education which increased to 6.9% for 2007 from 5.2% in 2006. 

Here is advice the article provided for students struggling with repayment of their federal loans:

Now That Is a STUDENT LOAN BALANCE!

ABA Journal is reporting that a would-be lawyer with $430,000 in delinquent student loans dating back to 1985 is being denied admission to the bar (even though applicant had passed the bar) for the following reasons:

"Under all the circumstances herein, we conclude that applicant has not presently established the character and general fitness requisite for an attorney and counselor-at-law," the court writes.

So, how does one get to $430,000 in delinquent loans?  If the lawyer hopeful borrowed $30,000 to get through law school and graduated in 1985, a compounded annual interest rate of 12% gets close to $430,000 by 2009.  Of course, this does not take into account late fees, collection cost, attorneys fees that surely would have been incurred in trying to collect on this debt. 

Harvard Finds Additional Lender for International Graduate Students

The Harvard Crimson is reporting that the Harvard University Employees Credit Union will be offering eligible Harvard graduate students private loans up to $250,000 without a co-signer.  This follows an earlier deal that Harvard had inked with J.P. Morgan Chase. 

A recent SLA flash survey indicated the difficulty that schools are facing in finding lenders for international students without a co-signer. 

SLA Flash Survey Confirms Difficulty of Finding Private Loans For International Students

The basic takeaway from this survey is that private loans for international students without a co-signer are incredibly difficult to find (I wish I had better news to report).  Here is a link to the survey results from the 158 responses:  Download International_Students_Private_Loans_FINAL

Here is a summary of the key findings:

• Only 6% of survey respondents have found private student lenders for international students WITHOUT a U.S. co-signer.  Almost all of these examples have been chronicled on this blog already and involve graduate institutions: 
  
  • Harvard University graduate schools partnered with Chase
  • MIT Sloan School of Management program partnered with MIT Federal Credit Union
  • Wharton MBA program partnered with Digital Federal Credit Union
  • Deutsche Bank will be funding the GMAC proposal which would cover international students at 40 MBA programs worldwide