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..."
Unfortunately, words like "meet current credit criteria", "subject to credit approval" and "acceptable debt-to-income" ratio are not very descriptive. Wells Fargo's disclosure stands out by, at the very least, providing details on the factors to be considered: credit history, debt-to-income and income levels. There won't be much relief coming in this area either based on the proposed Regulation Z proposal from the Federal Reserve.
Here is the Federal Reserve's current proposal on this topic, which would allow lenders to indicate that interest rates on private student loans are based on "consumer's creditworthiness and other factors":
"If the rate will depend, in part, on a later determination of the
consumer’s creditworthiness, the creditor would be required to state
that the rate for which the consumer may qualify will depend on the
consumer’s creditworthiness and other factors, if applicable."
We are not however at a total loss on this topic, however. To glean some insights into what factors lenders consider, let's turn to their applications to find out what factors they consider, in addition to the credit report that they pull. Overall, lenders tended to fit into one of three categories when it came to information used to underwrite these student loans. Also, keep in mind that
Unfortunately, what remains unanswered from this analysis is how each of these factors in isolation and in combination guide lender underwriting decisions. The limited set of data points that most lenders collect (with Sallie Mae and U.S. Bank being the exceptions) would seem to indicate that underwriting for these loans perhaps may not be as sophisticated as lenders might have us believe.
- Required least detail about student and co-signer's financial condition, job situation and housing status
- Lender: Discover
- Information required in loan application: Discover appears to rely strictly on the credit report for their evaluation of the creditworthiness of student and co-signer. Their application included basic identifying information about the student and co-signer including Social Security Number, date of birth, driver's license number and one personal reference.
- Required basic details about student and co-signer's financial condition, job situation and housing status:
- Lenders: Chase, Citibank, PNC, SunTrust and Wells Fargo
- Information required in loan application. Each of these lenders required these details:
- Employment situation
- Current employer: Name/Address/Phone
- Previous employer, if less than 2 years in current position
- Residence status: Own/Rent (PNC did not ask)
- Monthly mortgage or rent payment (PNC did not ask)
- Annual or monthly gross income
- Other income sources
- Sallie Mae and U.S. Bank required the basic details described above as well as this additional set of information about students and co-signers. It is interesting to note also that neither Sallie Mae nor U.S. Bank provide an immediate credit decision for many on-line applicants. Sallie Mae is taking 3-5 days to manually review Smart Option loans while U.S. Bank required confirmation of the identity of "thin file" students with little to no credit history before rendering a credit decision. As for the reasons that these lenders have more rigorous loan applications, Sallie Mae is staring at over $1 billion (yes, $1 billion) in loan writeoffs this year, while U.S. Bank has always enjoyed a reputation for conservative underwriting.
- Sallie Mae
- Asked about student defaults on previous educational loans
- Current outstanding student loans (Federal/Nonfederal)
- Grade Point Average (GPA) for student
- Balances in checking and savings account
- Estimated value of home
- U.S. Bank
- Asked about student defaults on previous educational loans
- Current outstanding student loans (Federal/Nonfederal)
- How long Other Income would continue
- Detailed information about monthly payment/balance owed for other debts
- Mortgage/rent
- Credit cards
- Auto loans
- Other indebtedness
- Sallie Mae
Unfortunately, what remains unanswered from this analysis is how each of these factors in isolation and in combination guide lender underwriting decisions. The limited set of data points that most lenders collect (with Sallie Mae and U.S. Bank being the exceptions) would seem to indicate that underwriting for these loans perhaps may not be as sophisticated as lenders might have us believe.
Hi - My daughter just got denied a private loan. She attended Oberlin College and graduated two years ago. Her arts degree will not help her in this economy so she's working (just got her job a month ago, but for part-time is getting lots of hours and reasonable pay). She's also taking a summer course and wants to attend Univ. of CO at Denver. She's been accepted to begin a second bachelor, this time in science. But the 'financial aid' she's eligible, we're told is limited to loans because its a second bachelor. The loans approved by the school do NOT cover the tuition and expenses. So she applied for a private loan with Chase. They checked co-signer credit (this much we know) and rejected the application within days. My credit as co-signer can't possibly report properly because I no longer live in the U.S. and to get a credit report, you need to use a U.S. address, so I gave one I use to get mail - it's a family member. I also had to answer how long I lived at this address - can't give a 'correct' answer to that either. Meanwhile, assets where I live are not included. She can't use my husband as a co-signer because he's a National of the EU and has no social security no. that would be recognized.
The notice of rejection did not state what the reason was.
My daughter had a 3.7 GPA from college and similar high honors from high school. She just wants to complete a meaningful education - is there anything more she or we can do (forget refinancing our properties - houses are selling slower than molasses here and house prices are reduced we borrowed against equity some time ago but the house prices have likely reduced our equity making more loans unlikely).
Will it hurt my daughter's credit to apply for a private loan with another bank?
Has there been ANY loosening of the bank moneys in recent months given the tax dollars given to them through both administrations?
If so, any particular banks showing an increased willingness to lend?
Any advice?!?!?!?!
THANKS FOR YOUR SITE BTW!!
Posted by: Jen W-C | July 22, 2009 at 05:50 PM