Paying for College Blog

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? 

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

NY Times Education Life: Saving for College and A Peek Behind the Curtain of the Financial Aid Office

Here were two stories that caught me eye in the NY Times Quarterly Education Life:

"18 Years In the Making" provides tips on saving for a college education at various stages of a child's life, but first explains a tip from a financial planner:

• Financial planner Kevin McKinley suggests a "20/20/20 approach":

Take the current average cost of attending four years at a public university: roughly $60,000. Save $20,000 before your child begins college by putting aside $50 a month starting at birth and assuming a 6 percent annual return. Then, pay $20,000 out of current income while the student is in college. Finally, have your child take out $20,000 in federal student loans over four years. The $200 monthly payments afterward are not a horrible burden for people in their 20s to bear, and they’ll be debt free once the 10-year payback period is over.

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:

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