Student Lending Analytics Blog

Why Shopping Around For A Private Student Loan Still Makes Sense!

Blog readers may recall a post about the same time last year demonstrating the value of shopping around for a private student loan.  This project helped dispel the myth that there was little difference in the starting interest rates that the purveyors of private student loans charge borrowers.  Interestingly, this post became one the most popular on the SLA Blog last year. 

In applying as a cosigner for six private student loans last year, the conditional rates ranged from 7.0% to 12.13% (with a 3% fee).  All interest rates quoted in  this post are variable rates that will adjust as their underlying index (either Prime Rate or LIBOR) changes.  . 

So, what to do for an encore this year?  How about adding another borrower to the mix with a different credit profile?

Sallie Mae "Aggressively" Working To Be Listed On Overture's Private Loan Marketplace

From Q&A during Sallie Mae Straight Talk today on preferred lender list regulations (here is link to their presentation).  Company executives were asked about Overture's Student Loan Marketplace:

"We [Sallie Mae] are not currently listed on their site.  We are aggressively working with them to be listed with them.  We are not currently participating but hope to be in the very near future."

Someone's Betting On Opportunity in the Private Loan Market...

And no, I am not referring to the St. Louis resident, who forged her daughters' signatures to take out $140,000 in student loans and gambled it away, according to the Kansas City Star. 

Instead, I wanted to highlight news that Fynanz had secured a $6.5 million Series A financing round, according to TechCrunch:

"Fynanz, a peer to peer lending platform for student loans, has raised $6.5 million in Series A funding from Draper Fisher Jurvetson, DFJ Gotham Ventures, The Brazos Group, Zelkova Ventures and JBR Media Ventures. This latest round of funding brings the startup’s total funding to over $8 million. Fynanz will use the funding to expand its credit union and student lending marketplace, and for the development of additional lending programs including financial literacy initiatives."

A Tale of Two Credit Unions (in San Antonio)

I had heard through the grapevine that Sallie Mae was looking to expand their referral programs to boost their Smart Option Loan volumes.  As blog readers are aware, Sallie Mae significantly missed their origination expectations for the private credit Smart Option loan product in the third quarter.  As I was researching these referral arrangements, I saw that a credit union in San Antonio, Security Service Federal Credit Union was promoting the Sallie Mae Smart Option loan.  In case there was any doubt about the relationship, this footnote was helpful in describing the referral arrangement:  "Sallie Mae Smart Option Student Loans are made by Sallie Mae Bank®. Security Service Federal Credit Union is compensated for the referral of Smart Option Student Loan customers."

What's interesting about San Antonio is the fact that another credit union in town, San Antonio Credit Union, also offers private student loans through the Credit Union Student Choice program.  Here is the tale of the tape on the two loan programs:

Not Sure I Agree...

I came across this article in the Credit Union Times today: "Bill Has No Impact on Private Student Loans, Jeffrey Says."  Here is a quick summary of the article:

"In a press release, CU Student Choice Jon Jeffreys said, “The bill obviously has a huge impact on lenders who participated in the Federal Family Education Loan Program, whereby they were able to originate federal student loans. However, it’s important to note the distinction between federal and private student loans. While they do share the same bankruptcy exemption as federal student loans, private loans are completely separate from the federal government and are meant to help students fill the funding gap after federal loans have been exhausted. The demand for these loans remains very strong–to the tune of nearly $15 billion this year alone.”

Remember that the bill that passed the House also calls for a $5 billion expansion of the Perkins Loan program which will reduce demand for private loans as more student borrowers opt for the 5% fixed interest rate of a Perkins loan vs. the variable rate private student loan with an average starting interest rate between 9.5% and 10.0%.  Meanwhile, Credit Union Student Choice, which has originated over $100 million in loans during this peak lending season has had average variable rate of about 6.0%. 

A Sign of the Times: Credit Unions Investing in Google Adwords

They had two of the top four Sponsored Links this evening under "student loans" search:

What Interest Rates Are Credit Unions Offering Today?

I spent the evening reviewing the private student loan interest rates at over 70 credit unions that are currently part of the Credit Union Student Choice network (there are 75 currently listed on their website ).  Here is a spreadsheet that lists the credit unions, their min/max interest rates, their floor rates and their index and margins: Download CU_Student_Choice_Rates_Aug09 Note that none of these loans have an origination or repayment fee.  This earlier post will be helpful in providing additional context about the structure of these loans. 

A few observations after crunching all of these numbers:

Credit Union Student Choice Provides Tool To Search For Private Loans

Credit Union Student Choice announced the release of a new tool today to help students in search of a private student loan.  Students are given two options of searching for a credit union participating in Credit Union Student Choice (there are currently 80):