I saw this on the MIT Sloan School of Management site today. Since Citibank discontinued their custom loan program in mid-October for international students, there has been a void in the marketplace for this target student population. As mentioned in other posts (here and here), there is growing evidence that credit unions seek to grow their student loan business given the economic crisis plaguing the banks.
This partnership between MIT and the MIT Federal Credit Union provides an extremely competitive option (Prime + 2.0% to Prime + 2.75%) for international students who would otherwise have limited or no options. It may also prove appealing to domestic students who (1) want to take advantage of extremely low interest rate environment (prime rate of 3.25%) and (2) believe that they will be able to pay their loans off before interest rates rise to a point that the direct Grad PLUS loan at 7.9% + 2.5% fees (4.0% fees if 12 on-time payments not made) becomes more attractive. I leave it up to the Sloan students with their superior modeling skills and Monte Carlo simulations to determine the appropriate loan product for their individual situations.
Here are details regarding this loan program (lifted from the Sloan web page, I have added BOLD to emphasize key points). Please note that any risk-sharing arrangement that might exist between the two institutions was not disclosed:
About This Loan
Eligibility requirements - U.S. students must have positive credit history and have the option of applying with a creditworthy co-signer
- International students must be at least 18 years old. International students do not need to have a cosigner, but if they apply with one they will receive an interest rate reduction. Co-signers must be either a U.S. citizen or permanent resident with a valid Social Security number.
- Enrolled (full-time or half-time)
- Annual credit review will be performed for all continuing domestic applicants.
Maximum annual loan - Price of education minus any financial aid as certified by MIT.
- Students may be approved for a line of credit up to $170,000 which may be accessed during the student’s enrollment at MIT.
- $5,000 minimum for new borrowers and those who have previously borrowed less than $5,000.
Aggregate limit - Graduate students: $170,000
Interest rate - Variable interest rates of prime rate +2.75% for international students. For domestic students interest rate will depend upon credit scoring and may vary from prime rate +2.00% to prime rate + 2.75%. (International students will have rate of prime + 2.75%; applicants with a coborrower will have a rate of prime + 2.25%)
- Students who apply with a US Co-signer will receive a 0.50% interest rate reduction.
- Interest rate varies quarterly, and has a rate floor of 5.50% and a rate cap of 18%.
- If interest is not paid while in school, it is capitalized once the borrower begins repayment.
Fees - No origination or prepayment fees
Repayment - Begins 6 months after graduation or withdrawal from school
- Flexible repayment terms including graduated repayment for the first two years.
- Graduate students have up to 25 years to repay depending on loan balance, plus any periods of deferment or forbearance.
- Students may make interest only payments during deferment periods.
- Students who sign up for auto-payment qualify for a 0.25% interest rate reduction.
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