USC Credit Union and Private Loan Transparency

Thanks to Patrick Moore of USC for bringing this example to my attention. 

USC Credit Union has a Collegiate Choice Loan Product (see website here) which actually provides loan pricing based on FICO bands.  Yes, you heard me right, armed with a FICO score, a borrower will actually know their interest rate BEFORE they apply for a private student loan.  What a novel concept!  Yes, I know underwriting is more complex than just a FICO score.  Yes, I know disclosing this information would hurt a lender's competitive position.  I know that rates may vary based on the institution too.  I have heard all these arguments before...

But, what if.... it didn't hurt, but rather helped a lender's competitive position.  The first major lender who went transparent would presumably have a nice marketing slogan, "Borrow from us and you actually know what you're going to have to pay for that student loan (and it won't cost you points on your credit score to find out)."  A man can dream, OK.  I can assure you that if lender's don't figure this transparency thing out, someone else just might. 

I spoke with Michael Kim at USC Credit Union who mentioned that USCCU is looking to add additional credit unions on to their platform.  It would be nice if other lenders took a page from his playbook and helped consumers make more informed decisions.  Who knows, such an action might even quell some of the recent dissent expressed by consumer groups opposed to using TALF to assist private lenders. 

Here is their disclosure on their College Choice Loan Product (which looks better on their website unless of course you are a Stanford Cardinal fan and have trouble with the sight of the Trojan colors): 

Interest Rates

Current 3-month LIBOR:
2.819%^*

*As reported in the MONEY RATES section of the Wall Street Journal on September 15, 2008.

Your rate is determined using the 3-month LIBOR (London Interbank Offered Rate) as published in The Wall Street Journal plus a margin based on your credit score and whether you qualify for credit with or without a cosigner. To estimate what your initial rate will be, take the 3-month LIBOR (which was 2.819% on September 15, 2008) and add the applicable margin from the chart below:*

3-month LIBOR + Margin = Interest Rate	Borrower (with Cosigner)	Borrower Only (No Cosigner)
FICO Score	Margin	Margin
750 and above	2.00%	2.00%
730 to 749	2.50%	3.00%
700 to 729	3.00%	3.50%
680 to 699	4.00%	4.50%
660 to 679	5.50%	6.00%

* Because the margin ranges from 2.00% to 6.00% (based upon your FICO score and whether you qualify for credit with or without a cosigner), if the Index is 2.819%, your initial Annual Percentage Rate would be between 4.819% and 10.819%. To illustrate, assume your FICO score is 680 and you qualify for credit without a cosigner. Based upon a 3-month LIBOR of 2.819%, your initial Annual Percentage Rate would be 7.319%. The APR is variable and may change after consummation. USC Credit Union reserves the right to change or modify product terms and conditions stated in this brochure at any time and without notice. Please refer to USC Credit Union’s website at www.USCCreditUnion.org for the most current product information. Loans and lines of credit are subject to all Credit Union policies and procedures.

SLA Note:  USC Credit Union offers a special loan product for those with FICOs below 660 which is at LIBOR + 8%, which explains why the range of these loans is stated above as 4.819% to 10.819%, according to Michael Lee. 

Please pass along any other examples of transparent lenders, as I would be happy to share with the community.