Searching For Stafford Loan Savings Opportunities

The Stafford loan is the most popular of the federal student loan programs.  According to the College Board, in 2007-08 Stafford loans represented $55 billion of the $67 billion in total federal loans.  Given the number of people who ask, I thought it would be useful to provide this table showing the rates and fees of some of the largest Stafford lenders (sorted by 2008 volume after Discover, which is the only lender with a no-fee loan): 

Subsidized Unsubsidized Origination Default  Rate Reduction Lender Interest Rate Interest Rate Fee Fee For Auto-Payments Discover 5.60% 6.80% 0% 0% 0.25% Sallie Mae 5.60% 6.80% 0.50% 0-1% 0.25% Wells Fargo 5.60% 6.80% 0.50% 0-1% None Citibank 5.60% 6.80% 0.50% 0-1% 0.25% Bank of America 5.60% 6.80% 0.50% 0-1% None Chase 5.60% 6.80% 0.50% 0-1% 0.25% PNC 5.60% 6.80% 0.50% 0-1% 0.25% EdAmerica 5.60% 6.80% 0.50% 0-1% 0.25% SunTrust 5.60% 6.80% 0.50% 0-1% 0.25% Access Group 5.60% 6.80% 0.50% 0-1% 0.25%

A few observations:

• Discover is the only major lender that offers a "no-fee" Stafford loan.  The 1.5% savings equates to $82.50 on a $5,500 loan (maximum for a dependent freshmen) or $307.50 on a $20,500 loan which is the maximum for graduate students.  

• The only other area of potential savings with the other lenders comes with the 1% default fee.  This fee is determined based on the guarantor that your lender partners with. 
  
  • SLA research has found that these guarantors, TG and TSAC, are currently paying the 1% default fee while NSLP is covering 1/2 of the default fee for borrowers.  Other guarantors may be paying the fee on a selective basis.  Be sure to ask your lender about the default fee, so that you are not paying an unnecessary fee!

• Wells Fargo and Bank of America are the only two lenders that are not offering the 0.25% interest rate reduction for automatic payments out of a borrower's bank account

• With all the clatter about the need for student loan choice, when it comes to Stafford loan rates and fees there is very little lender differentiation.  How did this come about?
  • By changing the economics of the business, the College Cost Reduction Act (which could also be known as the Borrower Benefit Elimination Act) led lenders to rein in benefits previously offered to borrowers (I know this firsthand, as SLA created an extensive database in the summer of 2007 with borrower benefits offered by lenders at over 2,000 schools...oops!)
  • The Loan Purchase and Participation program forced lenders to conform to DL's repayments benefits in order to be eligible

• For 2009-10, the fees on a Direct Stafford loan are 1.5%, although borrowers receive an immediate 1.0% rebate which they retain if they make 12 on-time payments (which as this SLA analysis indicates is only about 18% of the time).