Is There Really A Private Student Loan Available With A 1.78% Interest Rate? (Update)

Update (October 20, 2010):

The Maine Loan now has a fixed rate of 7.75% and a 4% guarantee added to principal at the time of disbursement. 

The starting interest rate on the North Dakota DEAL loan program (for ND residents and those attending ND institutions) adjusted to 1.79%, with is effective through December 31, 2010. 

Update (July 14, 2010):

The starting interest rate on the North Dakota DEAL loan program (for ND residents and those attending ND institutions) adjusted to 2.04%, which is the effective rate through September 30, 2010.  

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With peak lending (and borrowing season) upon us, I thought it would be useful to update my previous post on state alternative loan programs. 

Disclaimer:  Private student loans should be considered as a "last resort" only.  Students and parents should access all other available forms of aid, including scholarships, federal grants (e.g., Pell) and federal loans (with names like Stafford and PLUS) before considering a private student loan.

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I thought that headline might get your attention.  First the caveats:  The DEAL loan administered by the Bank of North Dakota, a state-run bank, is a variable-rate loan, so as interest rates increase it will too [DEAL also has a fixed-rate option which you will see described below].  Second, that 1.78% rate is available only if you are a resident of North Dakota OR attend an eligible institution in that state.  If you attend an institution or your legal residence is in South Dakota, Minnesota, Montana, Wyoming or Wisconsin, then the starting interest rate is 2.78%.  

Here is a spreadsheet with links to each of the websites for these state loan programs (please feel free to redistribute this list if you think it will be useful for your students):  Download State_Private_Loan_Programs_2010_11

Here are some attributes of these loans that are worth repeating again:

Disclaimer:  Private student loans should be considered as a "last resort" only.  Students and parents should access all other available forms of aid, including scholarships, federal grants (e.g., Pell) and federal loans (with names like Stafford and PLUS) before considering a private student loan.

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I thought that headline might get your attention.  First the caveats:  The DEAL loan administered by the Bank of North Dakota, a state-run bank, is a variable-rate loan, so as interest rates increase it will too [DEAL also has a fixed-rate option which you will see described below].  Second, that 1.78% rate is available only if you are a resident of North Dakota OR attend an eligible institution in that state.  If you attend an institution or your legal residence is in South Dakota, Minnesota, Montana, Wyoming or Wisconsin, then the starting interest rate is 2.78%.  

Here is a spreadsheet with links to each of the websites for these state loan programs (please feel free to redistribute this list if you think it will be useful for your students):  Download State_Private_Loan_Programs_2010_11

Here are some attributes of these loans that are worth repeating again:

• Many offer a fixed rate structure which eliminates any worries that one might have about rising interest rates. 
• With the exception of New York, students who have a legal residence in the state OR are attending an eligible institution in that state can apply for these loans. 
• Those that offer variable rate loans typically either have one variable rate for all loans they approve or a tight band in terms of the range of starting interest rates they offer.  
• The variable rates and fixed rates on their loans are significantly below the average private student loan.
• While many of these loans require a cosigner that has become par for the course this year.  
• Earlier SLA research found FICO cutoffs in the 660-700 range for those that disclosed this in their credit criteria.
• One thing to watch carefully is the repayment terms as several do require payments while a student is in school.  While this keeps financing costs low over the life of the loan, it can be a difficult proposition in this economic environment.

Here are the fixed rate loans available (sorted alphabetically):

State of Residence OR State of College Attended	Loan Name	Current Rate	Fees
Alaska	Supplemental Ed. Loan	7.20%	5%
Connecticut	CT FELP	6.80%	3%
Iowa	Partnership Advance	7.75% - 7.90%	0-4%
Massachusetts	MEFA	6.89% - 8.19%	4%
Minnesota	DEAL Loan	6.57% - 7.57%	0-2%
Montana	DEAL Loan	6.57% - 7.57%	0-2%
New Jersey	NJCLASS	7.62% - 7.92%	2%
New York	NY HELPs	7.55% - 8.75%	4-8%
North Dakota	DEAL Loan	6.57%	None
Rhode Island	RI Family Ed. Loan	7.25% - 8.49%	4%
South Carolina	Palmetto Assistance Loan	7.15% - 9.15%	1-3%
South Dakota	DEAL Loan	6.57% - 7.57%	0-2%
Texas	College Access Loan	6%	3-5%
Wisconsin	DEAL Loan	6.57% - 7.57%	0-2%
Wyoming	DEAL Loan	6.57% - 7.57%	0-2%

**See October 2010 update for information on the Maine Loan. 

Here are the variable-rate loans available (sorted alphabetically):

State of Residence OR State of College Attended	Name of Loan	Current Rate	Fees
Iowa	Iowa Alliance	9.00%	10%
Minnesota	SELF Loan	3.80%	0%
Minnesota	DEAL Loan	1.78% - 2.78%	0-2%
Montana	DEAL Loan	1.78% - 2.78%	0-2%
North Carolina	Extra Education Loan	Suspended
North Dakota	DEAL Loan	1.78%	None
South Dakota	DEAL Loan	1.78% - 2.78%	0-2%
Wisconsin	DEAL Loan	1.78% - 2.78%	0-2%
Wyoming	DEAL Loan	1.78% - 2.78%	0-2%

Please reference the earlier post for relevant details about the loan programs. 

Comments

[Michael]

Great information. Thank you for your article. This help me so much