Paying for College Blog

Financial Aid Directors: In Their Own Words

This week's quotes focus on the state of the economy and its implications for the financial aid office:

• "CSN [College of Southern Nevada] Financial Aid Director Peter Hurley says their applications are up 82-percent from this same time last year.  If this trend continues, they're expecting 35,000 students to apply for help for next year putting a strain on their work study programs and grants.  "It can only go to so many people and make a difference. I can't give everybody $5 and expect to have a positive impact on enrollment," said Hurley."

2009 SLA Private Loan Series: Borrower Benefits

Borrower benefits provide opportunities for borrowers to reduce the cost of their loan.  These benefits for private student loans generally fall into one of three categories:

• Interest rate reductions for students who sign up to have funds transferred from their bank account to cover their monthly student loan payment. 
  
  • Citibank, Chase, Discover, PNC, Sallie Mae, SunTrust and Wells Fargo all offer a 0.25% interest rate reduction for auto-debit.  U.S. Bank offers a benefit of 0.50%.  Borrowers can contact the lender to sign up for this program or typically can complete a form that accompanies the account statement.  Why sign up for the program?
    • Saves money.  A 0.25% interest rate reduction on a $10,000 loan with interest rate of 10% could yields close to $1,000 in savings over a 20 year repayment period
    • Setting up your account for automatic payments eliminates the potential for late payment fees, which can be quite significant.  
      • In case you were wondering how significant, Sallie Mae reported late fees and forbearance fee income of $143 million in 2008 (page 37 of 2008 10-K). 

2009 SLA Private Loan Series: What Ingredients Go Into the "Secret Sauce"?

One of the big challenges facing borrowers seeking private student loans is figuring out two things:

• Will my application be approved?
• If it is approved, what interest rate will I pay on the loan?  

For those looking for clarity on lender websites to question #1, here is a sampling of what's out there:

• Sallie Mae Smart Option Loan:  "You must meet current credit and other eligibility criteria."
• Wells Fargo Collegiate Loan:  "Have an established, positive credit history, an acceptable debt-to-income ratio, and a minimum income of $12,000 — or a cosigner who does."
• Chase Select Student Loan:  "Chase Select loans are subject to credit approval..."

Interest Rates on British Student Loans Likely to Fall to Zero (Or Lower)!

How is this possible? 

From the myfinances.co.uk site: 

"The interest rates on student loans are usually tied to inflation on the retail prices index (RPI) in March for the coming year.  RPI for March, in data released this week by the Office for National Statistics, was negative at -0.4 per cent.  The Department for Innovation, Universities and Skills (DUIS) has confirmed it is in discussions with the Treasury over what the rate from September should be – and a decision is expected soon."

How Education Affects the Economy: A McKinsey Study

On the reading list for the weekend:  The Economic Impact of the Achievement Gap in America's Schools
from McKinsey and Company, the management consulting firm. 

Related news:

• Tom Friedman column in NY Times:  "Swimming Without A Suit"

2009 SLA Private Loan Series: What Is the Meaning of "Instant Credit Response?"

Yes, we have all seen these marketing claims from private student lenders before:

• "Apply now and receive an instant credit decision"
• "Receive a preliminary decision for a loan within minutes of applying online"
• "Easy online application with fast credit decision"

When it comes to the application process, consumers clearly value speed and immediacy when it comes to the credit decisioning.  So, what really does happen after the student borrower and his/her cosigner dot the "i"s and cross the "t"s on their online private loan application?   To what extent do lenders clearly and completely disclose information on interest rates and fees after they conditionally approve a loan? (Note:  The Federal Reserve's Regulation Z includes specifics about items that lenders will be required to disclose upon loan approval)

Pigs on Jet Skis Promote Financial Responsibility

Looking for a diversion?  Hmm.how can a piggy bank on a jet ski teach me about budgeting, debt and the search for happiness? 

Senate Version Of Credit Card Bill Puts In Safeguards For College Students

With concern mounting over the amount of college students' credit card debt, the Senate is currently considering a bill to address this issue. 

Here is the summary from Reuters

"Senate bill - would ban issuing cards to anyone under 21 unless they show they can repay the credit extended or complete a certified financial literacy course."

CNN Money reports on the Senate bill:

"The Senate bill also prevents those under 21 from getting credit cards unless a parent or guardian backs them up or if they take a government-approved financial literacy test."

Without being specific, the CNN Money also noted that:

"Many Senate Republicans and a few Democrats have said they don't like the Senate's legislation, making passage unlikely without concessions. The sponsor, Sen. Chris Dodd, D-Conn., has said he's willing to consider some compromises."

2009 SLA Private Loan Series: Shopping for Private Student Loans Makes a Difference!

In an earlier post this week, I indicated the high level results of my recent on-line private loan shopping trip with starting interest rates ranging from 7.0% to 12.125% (remember that private loans are variable rate and change monthly or quarterly based on an underlying index).  Remember that private loans should only be taken out as a last resort and borrowers should exhaust all federal grants (e.g., Pell), federal loans (e.g., Stafford, PLUS or Grad PLUS), work-study and scholarship aid before considering private loans. 

A quick recap on the process:  Last week, I completed 6 private loan applications as a co-signer for a $5,000 private education loan for my nephew, who is currently attending a 4-year private non-profit institution.  For those concerned that so many applications might harm your credit score, read this latest announcement from Fair Isaac.  This study is not intended to have statistical validity  but rather is intended to show one person's journey through the private student loan process.  Given the lack of transparency in rates offered by private lenders, I thought this would at least provide a limited window into the variability in the rates that are out there.  Remember that lender's make credit decisions based on the creditworthiness of the individual student and the co-signer as well as the institution the student is attending and other factors ("the secret sauce).

For those wondering, my FICO score is considered Average by the credit agencies.  That 8 year old bill from the San Carlos city government for a false alarm on our security system on a windy night seems to have taken its toll.  I also must admit that I am a bit debt-averse having gotten that trait from my Dad, who was born across the pond just as the 1929 Crash hit Wall Street.

So, drumroll please...., how did the rates and fees that lenders offered to me in their conditional approval letters stack up:

	Starting		Advertised
Lender	Interest Rate	Fees	Interest Rate Range
Discover	7.00%	0%	2.75% to 8.00%
SunTrust	9.13%	3%	3.63% to 12.13%
Citibank	10.25%	5%	4.25% to 10.75%
Chase	11.57%	0%	6.07% to 13.57%
Wells Fargo	11.74%	0%	5.75% to 12.74%
Sallie Mae	12.13%	3%	4.63% to 13.13%

International Student Loan Program For MBA Students Goes Live

The Financial Times is reporting that the International Student Loan Program (ISLP) developed by the Graduate Management Admission Council (GMAC) has gone live at the University of Chicago's Booth MBA program.  This program was originally announced in February and was focused on providing loans for international students at 40 top MBA programs in the U.S. and Europe.

Here are details that appeared in the FT article: