Cheaper, Bigger, and Cooler Student Loans

Finally, students and parents can celebrate a little good news: It's getting a little easier and cheaper to borrow for higher education.
The government has responded to the credit crunch by allowing all undergraduates to borrow more money from one of the cheapest federal loan programs, cutting interest rates for needy students, and easing repayment for strapped parents. In addition, while turmoil in the financial markets has driven some banks out of the student loan business, it has attracted upstart companies that are now offering students help making alternative arrangements, such as borrowing from rich relatives. So with a little shopping around, students and parents should be able to find lenders offering at least a small discount on modest-size educational loans.

More money: New federal rules taking effect July l increase the amount that almost every full-time undergraduate will be able to borrow from the federal Stafford program to at least $5,500. The newly expanded federal Stafford loan program will allow upperclassmen to borrow up to $7,500. Students older than 24 or who are independent from their parents can borrow at least $6,000 more than that.

The Stafford loan will cost students no more than 6.8 percent a year in interest and 2 percentage points in fees, for a total annual rate of 7.25 percent. And despite the credit crunch, some lenders are still waiving the fees and offering other small discounts.

Lower-cost loans: In addition, Congress cut the interest rate Stafford loans will charge students who qualify as needy to just 6 percent for the academic year that starts in the fall of 2008. It also has ordered further small cuts to the "subsidized" Staffords (which go only to needy students) in future years. Those reductions will cut the total cost of repaying the loan over 10 years by hundreds of dollars.

Best of all, nearly every student who fills out a Free Application for Federal Student Aid—even those who filled out a FAFSA just a few weeks before school starts and whose parents have high or low incomes—can receive a regular federal Stafford loan.

Once students have graduated, those who go into low-paid public service jobs may eventually get some of their education loans forgiven.

Payment flexibility: Parents are also getting a break under the new rules. Parents who take out a new federal PLUS loan—which can cover their child's full cost of attendance after considering other financial aid—will be able to defer payments until six months after the student leaves school. Also, parents facing financial difficulties because of the housing crunch or medical bills may now be able to get a PLUS loan, despite a poor credit record.

Although they offer some special goodies, such as free insurance, PLUS loans aren't cheap. Lenders can charge a maximum fixed rate of 8.5 percent a year plus 4 percentage points in fees, giving a true maximum annual percentage rate of 9.4 percent. (If a parent gets rejected for a PLUS loan because of credit problems, the student can borrow as much as $7,000 a year more through the Stafford program.) Education loan payments are tax deductible to parents with low and middle incomes.

That's why many parents with good credit, solid income, and home equity find that private loans are often better deals. Parents who can persuade a bank to let them tap their home equity despite today's housing and credit crunches may find banks willing to offer rates that start out as low as 4 percent in the summer of 2008 (though, of course, those rates and payments will very likely rise over time). Homeowners not subject to the alternative minimum tax may be able to deduct the home equity payments from their taxes.

Parents who don't want to touch their home equity may be able to find banks willing to make unsecured loans at similarly attractive rates. Discover Financial Services, for example, says it is offering borrowers with credit ratings in the top 20 percent private education loans at half a percentage point below the prime rate—which means it's charging just 4.5 percent in the summer of 2008. Of course, the payments on those loans will rise when prime rises, as it probably will.

Many parents also prefer private loans because they hope to eventually transfer the debt to the child. But advisers warn that although the student's name may be first on the loan, it can be hard to remove a parent's responsibility for the debt if the student ever defaults.

New and different: Several upstart companies have emerged to help students and parents looking for even cheaper and easier ways to borrow. Students who find a friend or relative willing to lend them college money can pay a small fee to Virgin Money or Greennote to do the paperwork to turn informal lending agreements into business deals that are billed and treated like bank loans. Fynanz is attempting to line up investors willing to lend to students they don't know. It typically demands students be backed by a cosigner.

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Student Loans Make Money for Taxpayers

Good way to Student Loans Make Money for Taxpayers ,As banks and private lenders quit offering what they say are money-losing educational loans, one group is making nice profits from some student and parent borrowers: taxpayers. Government agencies estimate that for every $10,000 a parent or graduate student borrows through the federal PLUS loan program in the next year or two, taxpayers will collect anywhere from about $600 to $3,000 above the total cost of the loan by the time the debt is repaid.

Ironically, taxpayers are reaping healthy 5.5 to 30 percent profits on PLUS loans for the same reasons private lenders are losing money. The government has saved money by requiring lenders to send the government a higher percentage of each PLUS payment. And the credit crunch that has raised borrowing costs for private companies has lowered federal interest rates.

That's why PLUS loans are still the cheapest option for many parents. PLUS loans made directly by the federal government charge a fixed 7.9 percent in annual interest and an additional 4 percentage points in upfront fees, for a total annual percentage rate of 8.8 percent. Some private loans are advertising initial rates as low as 5 percent for people with excellent credit. But most borrowers would be charged several points more than that because they have less-than-perfect credit records. In addition, most private loan rates are variable, so payments will rise when other interest rates bounce up. Finally, private loans don't offer PLUS loans' free insurance or flexible repayment options and won't be reduced if a grad student takes a public service job.

As taxpayers, parents are glad that the PLUS program reduces tax burdens, but James Boyle, president of College Parents of America, says that the potential size of the profits raises concerns. "PLUS loan margins need to be watched closely, so that greater benefits go to parents and not the U.S. Treasury," he says. Rep. George Miller, chairman of the House Committee on Education and Labor, noted that the extra money generated from last year's reduction in subsidies to lenders helps increase Pell grants for lower-income students and funds loan repayment programs for public servants and borrowers who end up in low-paying jobs. And that makes "college more affordable for millions of Americans," he says.

The gains from PLUS loans also offset losses from student loans . Undergraduate and graduate students who qualify as needy and thus get a subsidized federal Stafford loan in the next year or so will end up paying back about 16 percent less than the loans ultimately cost taxpayers, according to estimates by the Congressional Budget Office and the Office of Management and Budget. Subsidized Stafford loans cost taxpayers because they don't charge any interest while students attend college. These loans also charge only about 6 percent annual interest once the student leaves school.

Any student who doesn't qualify as needy can take out an "unsubsidized" Stafford loan, which is likely a wash for taxpayers. Those students are charged interest of 6.8 percent a year—and the interest builds up while they are in school—plus 1 to 2 percent in upfront fees, raising the total annual percentage rate to about 7.2 percent. The OMB estimates those loans cost taxpayers about 3 percent, but the CBO estimates taxpayers will make about 2 percent on those loans.

Because the government lends about five times more in costly subsidized Stafford loans than it does as PLUS loans, the entire federally guaranteed educational lending program is projected to cost taxpayers about 2 percent next year, the CBO and OMB agree. In a March analysis—its most recent of the federal education loan program—the CBO estimated that the federal government will make $73.2 billion worth of educational loans in 2009. By the time all those loans are repaid, the loans will very likely have cost taxpayers about $1.7 billion more than the government received in principal, interest, and fees. That's nevertheless a dramatic improvement for taxpayers. As recently as 2005, federal education loans were much less advantageous for taxpayers.

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Why student loan business turned bad

Why student loan business turned bad
A few years ago, the $47.5 billion student loan market was booming. Now dozens of lenders have pulled out and the leading player is threatening to follow. Washington may have to step in.
By Tami Luhby
NEW YORK (CNNMoney.com) -- For years, financial firms made good money making government-guaranteed loans to college students.

Lenders were guaranteed a minimum interest rate at a healthy margin. Few borrowers defaulted and the federal government backed the loans if they did. Investors snapped up securities based on these loans, giving lenders a steady stream of funding.

Attracted by the easy profits, Wall Street jumped in. Goldman Sachs began investing in student lending businesses. JPMorgan Chase expanded its lending operations and upstarts appeared.

"It was a cash cow," said Mark Kantrowitz, who runs FinAid.

"It was a cash cow," said Mark Kantrowitz, who runs FinAid.org, an online college financing site. "A lot of these lenders popped up because it was a good business, an easy business."

Not any more. The $47.5 billion federal student loan world has been thrown into chaos in recent months. Lending has turned unprofitable for many firms, prompting scores of them to shut their doors or scale back.

Even Sallie Mae - by far the largest lender in the arena with 19% of the market - is questioning how many more loans it can finance. The company has already exited the market for consolidation loans, which are popular among graduates seeking to stretch out the repayment period. Sallie Mae (SLM, Fortune 500) had handled more than one in four of these loans. With the college financing season set to ramp up in May, the lender says it will not be able to meet the expected demand.

"We are literally in daily deliberations about how much further we can go," Sallie Mae Chief Executive Albert Lord said last week. "Our new loans are for the most part going to lose money."

Already, more than 55 lenders, which originate 13% of federal loans, have dropped out of the program, prompting fears that students will not be able to get funds needed for fall tuition. While some financing companies see the crisis as an opportunity to get more business, experts question whether this will be enough to make up for the exodus.

At this point, no one has been denied a loan, industry experts stress. But many are concerned this may change as a wave of students apply this summer, prompting lawmakers to propose temporary fixes.

JPMorgan, for instance, recently stopped making federal-backed loans at certain schools. The nation's fourth-largest lender evaluated the profitability of the loans it originates at each school. Factors included the school's default rate and average size of loans. While it costs the same for the bank to make a $1,000 loan or a $10,000 loan, it earns more on the latter.

The study led Chase (JPM, Fortune 500) to stop making federal loans at some schools, though a spokesman would only say: "It was not a small number."

Though Chase can fund loans through its own deposits instead of the costlier method of selling them to investors as securities, it must consider how much of its precious capital it wants to use for student loans. Ending lending at some schools will allow it to make more loans at more profitable ones. It is also expecting to get additional applications as other lenders leave the program.

Higher financing costs

The student loan squeeze began last fall when Congress reduced the subsidy given to lenders. The federal government provides a guaranteed rate to financial firms. The rate had been based on the commercial paper rate plus 2.34% - and that gave lenders a tidy profit when their cost of funding was low. The margin was cut to 1.79%, which combined with other changes, reduced lenders' yield on the loans by 0.7%.

Had this been the only change, most financial firms might have grumbled but that's about it, experts and lenders say.

Then, the credit crunch hit Wall Street. Mortgage defaults spooked investors of any kind of debt, forcing lenders to offer much higher rates to lure them in. Many lenders rely on securitizing these loans to obtain funding for new student loans. Nowadays, many financial firms find they have to pay investors rates that are 1.3 percentage points higher than last summer's to entice buyers of securities backed by student loans.

The result of lower rates from the government and higher borrowing costs? A profit margin of little to nothing on federal student loans.

"Lenders can't lend at these kinds of spreads and expect to meet the rise in demand that we're seeing from students for this upcoming season," Jack Remondi, Sallie Mae's chief financial officer, said last week. "The cost is just too high to continue those kinds of activity."

Response from Washington

With students starting to apply for funding in droves, financing companies are looking to Washington to jumpstart the market. Lawmakers have floated various proposals, including allowing the government to buy federal student loans or to allow the Federal Financing Bank to provide funds for loans.

The Department of Education on Wednesday said that it supports the effort to allow the government to buy loans at cost, thought it has yet to work out the specifics that would make this move beneficial for banks. But it concluded that the Federal Financing Bank does not have the authority to purchase the debt. Meanwhile, it is ramping up its direct loan program and working with guaranty agencies nationwide to make sure funding is available.

This may not prove enough, experts said.

"The letter fails to respond to questions posed by members of the Senate Banking Committee as to what actions the Treasury Department is willing to take to prevent [a student loan] crisis from occurring," said Christopher Dodd, D-Conn., chair of the Senate Banking Committee.

Some lenders see opportunity

Not all lenders, however, are fleeing the business. Bank of America Corp., for instance, is looking beyond the profitability of each loan, instead seeing college financing as a way to begin relationships with future banking customers.

Last week, the No. 3 lender said that it plans to focus more on the federal student loan market and exit the private loan industry. Bank of America said it hopes to grow loan volume by 20% over the next year.

Bank of America (BAC, Fortune 500) sees the market as an opportunity to connect with students and pitch them checking and savings accounts while they are in school and other products after they graduate.

"It doesn't end after the student gets out of school," said Diane Wagner, a spokeswoman. "We want to make sure we continue that customer relationship."
Why student loan business turned bad
Form CNN

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Student Loans With Bad Credit

Student Loans With Bad Credit




Student loans with bad credit are available in varying amounts for those looking to further their education. Depending on the situation, the borrower may qualify for financing to pay for some or all of their education. It is good news that people with a history of credit problems will still have the opportunity to qualify for money to pay for their education. However, this type of financing will have a higher interest rate for borrowers who have less than perfect payment histories. This is to protect the lender as people with bad repayment histories are considered to be a high risk. Any lender could offer a student loan with bad credit, but there are certain ones who specialize in this area and it would be a great advantage to have someone experienced in this area to help.

Many high school students' only hope for college is through financial aid. Higher education is very important and should not be reserved for only people who are wealthy. Anyone who is dedicated to pursuing an education in order to obtain a great career should be given the chance to do so and should have access to a student loan with bad credit. Many young people need financial assistance because they often get into debt and are not able to pay all of their monthly minimum payments. Living is learning and they should be allowed the chance to recover from mistakes and qualify for assistance so that they can pursue a career and become a productive member of society.

There are many different options to choose from and some lenders will allow payments to be deferred on the principal until graduation. Others will not require payment at all on the student loan with bad credit until the student finishes college and obtains a job. An alternative to applying for student loans with bad credit on your own is to have parents or someone else who has good payment history to sign as the co-borrower.

It is possible for parents to be the borrower on the student loan providing that their credit score is good. This will lower the rate of interest that will have to be paid. Making the payments each month on time can improve credit standing before the student tries to obtain the financing themselves. And remember to, "Honor thy father and mother; which is the first commandment with promise; that it may be well with thee and thou mayest live long on the earth." (Ephesians 6:2-3) Whatever route you choose, the bottom line is that student loans with bad credit are attainable.

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Bush administration realizes it doesn’t have authority to fix student loans

In an unsual admission for this administration (just talking factual here, nothing else implied), the Bush administration admitted it doesn’t have the authority to fix the student loan crisis, and that Congress must fix it.

Here is an excerpt from the Chronicle of Higher Education. You may need a paid subscription to view the entire artcile.

The Bush administration called off internal deliberations over a bailout plan for student-loan companies
after concluding it did not have the authority to act on its own, instead endorsing a Congressional
proposal that would allow the education secretary to purchase loans from private lenders.

Education Secretary Margaret Spellings, after weeks of discussions within the administration, joined her
colleagues at the White House and Treasury Department in telling Congress that they see no legal option
for putting in place an industry-backed proposal to use the Federal Financing Bank to supply funds to
cash-strapped student-loan companies.

…

The decision leaves Congress facing a ticking clock for solving a student-loan “crisis” that some
legislators aren’t sure yet exists. The members are also caught between industry lobbyists who feel the
authority proposed for the education secretary may offer them little real help and student-aid advocates
worried about setting a framework that might enable abuses.

The proposed authority for the education secretary appears to offer lenders nothing more than funds to
cover the cost of writing their loans, said Sameer Gokhale, an industry analyst with Keefe, Bruyette &
Woods. “That’s not really a viable option for many lenders,” meaning they might not continue to
participate in the government-subsidized system, Mr. Gokhale said.

At the same time, some student-aid lobbyists have expressed concern that the plans under consideration
in Congress, especially the version pending in the Senate (S 2815), contains enough loopholes and uncertainties that loan companies could profit by dumping only their lowest-value loans on the federal
government and keeping the more-profitable loans for themselves.

…

Congress faces a difficult challenge writing a plan that will be fair to all sides and doing it quickly
enough - within a few weeks - to make a meaningful difference for college students who might
encounter problems finding a willing lender for this coming academic year, said Terry W. Hartle, senior
vice president for government and public affairs at the American Council on Education.

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Student Loans : Who Can you Trust?

If you're a parent or student plotting a strategy to pay college tuition, add one more worry to your list. Recent reports indicate that there have been unethical arrangements quietly occurring between lenders and universities. The unfortunate news has college families asking, "Who can you trust?"

Student loans have given many high school graduates the opportunity to pursue a higher education and better life. According to recent media reports, however, these loans have also been providing university officials across the country with a better life-one that's financed by kickbacks and revenue sharing. Students and parents must learn how to protect themselves when it comes to getting financial aid.

Preferred lender problem
The main crux of the problem is the "preferred lender" lists that colleges provide to their students. Because there are so many private lenders vying for loans in the huge college market, many financial institutions offer lower rates and revenue-sharing deals to any college that includes them on the preferred lender list.

Many schools take the money and return it to students in the form of financial aid. But there are accusations that financial aid directors at several schools have received some rather questionable consulting fees. There are also reports of lenders offering paid trips in return for high placement on this list.

Politicians to the rescue?
Politicians have been quick to offer solutions to this problem, proposing a variety of fixes and new programs. Some include cutting the interest subsidies that the federal government currently pays to lenders. Others encourage schools to do the private lending themselves. Overall, there has been a call for tighter scrutiny of these programs, which school officials fear may inhibit their desire to broker better deals.

Take matters into your own hands
The best line of defense is for students and parents to protect themselves. To do this, they'll have to do something that students are quite familiar with: homework. First, compare the programs of anyone on the preferred lender list with lenders who aren't on the list. Don't assume that the best rates will only come from the former.

Next, pick up as much information on shopping for student loans as you can. Tap into the Internet and scour up anything and everything you can find.

Finally, carefully read through and understand the loan agreement. If the financial language proves too difficult, find a family friend or lawyer who understands the fine print and can give you some advice.

For prospective college students, the recent announcement of the cozy relationship between lenders and colleges serves as a life lesson: When it comes to financial matters, don't blindly trust anyone. Do your own research, and understand the financial transaction you're entering into. Ultimately, this whole controversy serves as a perfect example of why it pays to do your homework.

Student Loans: Who Can you Trust?
By: MortgageLoan.com | May 01, 2007

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Student Loans Easy Financial Assistance for Higher Education

Education is an important tool and essential for the overall growth of the individual. Each year a lot of students throng the corridors of colleges and universities seeking admission in the various streams. But the high fee structure and the over all costs have compelled these students to consider other options. However there are certain ways through which the students can pursue their education. To help these students various banks and lending agencies have come up with Student Loans. These loans are meant especially to assist students meet various cost pertaining to their education.

These loans are very different from other loans available in the financial market at present. The terms and conditions are designed to suit the financial condition of the applicant. There is no need to repay the loan amount until and unless, the applicant has completed the course and got a suitable job. In most cases, the borrower starts making payments after six months of completing the course. If the borrower pays the interest rate while undertaking the course, it will drastically reduce the debt burden.

The borrower is free to utilize the loan amount obtained. It can be used for paying college education fees, library dues, purchasing books and other tools and equipments, personal expenses etc. Before availing these loans, it would be prudent to evaluate the overall expenses. This way the borrowers will have a fair idea of the amount required which needs to be availed.

These education loans are made available to the borrowers in secured and unsecured form. The secured form of the loans are collateral based and offer a bigger amount. The interest rates too are comparatively low. On the other hand, unsecured option of the loans can be acquired without any collateral. However, the borrower has to pay a slightly high rate of interest on the borrowed amount.

The loans are offered by most of the lenders. Students can seek assistance from government and private lenders as well. To save time and effort borrower can also seek the loans from online lenders. It is simple and helps the borrowers to obtain the best deal from the available options.

The most important phase in any student’s life is the education. And student loan is just meant for those students who lack the finances to meet their costs on education.

Student Loans Easy Financial Assistance for Higher Education
Author: Julia Russell

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The Latest Twist in Student Loans

Because of the credit crunch, conventional lenders are making it tough for any but the most creditworthy borrowers to qualify for private college loans. Now, a new breed of student lender is trying to get students to return the snub -- by writing off the Sallie Maes and Citibanks of the world in favor of relying on friends, family, and even perfect strangers to finance their college loans. "It's not a solution to the credit crisis in student loans by any means," says Mark Kantrowitz, publisher of financial aid Web site finaid.org. "But the idea of using peer networks to raise money is intriguing."

In recent months, peer-to-peer lending sites (BusinessWeek, 4/23/08) such as Prosper and Virgin Money USA have introduced student loans or started marketing existing offerings to families looking for college funds. Others, including startups GreenNote and Fynanz, are focused exclusively on making college loans. Analysts say the sites are benefiting from the confluence of trends -- a growing acceptance of peer-to-peer lending and fallout from the credit crunch, which has caused lenders who account for more than 20% of the market for private student loans to stop lending.

The general idea is to facilitate loans between students, on the one hand, and either Good Samaritan friends and relatives, or strangers intent on investing in alternatives to stocks, bonds, and certificates of deposit. The sites take very different approaches, though. Some, such as Virgin and GreenNote, mainly seek to formalize loans between friends and family members. Others -- Prosper among them -- allow borrowers to publicize the amounts they wish to raise and the interest rates they're willing to pay. Then, lenders -- friends or strangers -- bid on funding even a small portion of these loans. As the competition among bidders intensifies for a piece of a loan, the interest rate a student will have to pay declines.

A Win-Win Setup

It sounds like a great idea. For individual lenders, the loans are promoted as a way to earn a decent rate of return while helping a student in need. For borrowers, the allure is the prospect of securing an interest rate that's lower than the 6% to 16% that conventional lenders charge for private loans. (Interest rates on private loans depend mainly on credit scores.) "The idea that you can get people bidding down the interest rate on your student loan is certainly attractive," says Kantrowitz.

There are also plenty of potential drawbacks. For lenders, the risks are difficult to gauge. Indeed, many peer-to-peer sites say it's too soon to know what percentage of borrowers will ultimately default on their loans. While lenders can reduce the risk of a loss by carefully vetting borrowers, lending in small doses, and spreading their money among several borrowers, a loan portfolio with an average interest rate of 10% will net just 7.5% if 10% of borrowers default, says Kantrowitz. That's not unrealistic, given that 11.5% of Sallie Mae's private loans were delinquent in 2007. Some sites, including Fynanz and Zopa, offer lenders some degree of protection against losses. The trade-off, though, is lower returns.

For borrowers, the big question is whether the sites will help make loans more plentiful. Currently, most peer-to-peer lenders report low lending volumes. At Prosper, for example, only 2% of the $150 million in loans arranged so far are for education. Moreover, the terms on some of these loans may prove unattractive. Some lenders, for example, require students to repay loans over relatively short periods. Not all of them will grant postponements until after graduation. Moreover, the fees on these loans can be high. And because there's no guarantee of landing an attractive interest rate, it's important, as always, to shop around.

Before borrowing from any of these sites, be sure to exhaust the amounts available under federally backed loan programs. With a maximum fixed interest rate of 6.8%, the Stafford Loan for students is almost always less expensive than a private loan. The downside: These loans limit undergraduates to a cumulative amount. But families can borrow more -- up to the full cost of attendance -- under the federal PLUS Loan program for parents. The current rate on a PLUS loan: a fixed 8.5%.

Here's a quick read on the various players in the market for peer-to-peer student lending:

Prosper: The site (prosper.com) fits students into its one-size-fits-all loan program -- a three-year loan that borrowers must start repaying immediately. The site models itself after eBay (NasdaqGS:EBAY - News). Borrowers allow Prosper to pull their credit reports, verify their enrollment status, and assign them a risk measure that alerts lenders to the potential risk of default. The lenders bid on slices of the loan, with those willing to earn less interest driving down the rate on the loan. The site makes money on fees. Borrowers pay 1% to 3% up front, depending on their credit score. Lenders pay a 1% servicing fee each year.

Virgin Money USA: This site (virginmoney.com) formalizes loan arrangements between friends and family. While some 11% of the $300 million in loans it has arranged have been used to fund education, it only recently launched a product, called Student Payback, that's specifically for students. President Asheesh Advani touts the loan's flexibility: Payments can be postponed until graduation, he says. And "every year, for no extra fee, borrowers and lenders can change the payment schedule." Negotiated between borrower and lender, the interest rates are typically about 4% or 5% -- or far below the 6.8% rate on federally backed Stafford Loans. A lender can sign over up to $24,000 a year without triggering a federal gift tax.

While many parents dig into their pockets to make loans, some take out home equity or Federal PLUS loans -- and use the site to formalize a student's pledge to repay those amounts. "Parents are more apprehensive about retirement now. This really provides them with peace of mind," says Advani. Still, peace of mind doesn't come cheap. Up-front fees on the loans range from $199 to $299, depending on whether a student borrows once or multiple times. When a student graduates and begins to repay a loan, Virgin pockets yet another $9 fee per payment to service the loan.

Fynanz: Launched in March, the site (fynanz.com) makes students loans in seven states, including New York, New Jersey, and Massachusetts. By early 2009, CEO Chirag Chaman expects it to go nationwide.

For lenders, Fynanz takes some of the risk out of making loans. It guarantees repayment of anywhere from 50 cents to 100 cents on the dollar. The guarantees rise with a borrower's credit. It also requires borrowers to obtain co-signers, who become responsible for repaying loans that default. The site is picky about whom it selects: Currently, it turns away about 12 applicants for every borrower it accepts, Chaman says. "Our job is to reduce default rates."

The site offers some benefits to borrowers. By summer, it will launch a product that will exempt college juniors and seniors with credit scores of at least 640 from the co-signer requirement. And it shaves 1% off a borrower's interest rate once 10% of the loan is repaid. The site sets rates -- which are variable and currently range from 5.6% to 10% -- at auction. It charges lenders 1% a year to service the loans. Borrowers, who pay from 2.9% to 6.9% of the loan amount up front, max out at $120,000 as undergrads.

GreenNote: Currently available to students at 12 colleges, this program will officially launch in early June. The site (greennote.com) doesn't plan to require students to line up a more creditworthy friend or relative to co-sign its promissory notes. Nor does it plan to check borrowers' credit scores. "It's a platform that allows students to tap into their social networks. This can be friends, family, alumni of the same school, or friends of friends," says founder and CEO Akash Agarwal.

The site collects and transfers the amounts lenders contribute to schools. Students can postpone repaying these loans until after graduation. The interest rate is low -- a fixed 6.8%, to conform to the maximum under the federal Stafford Loan program. "Lenders can choose to reduce or waive the interest at repayment, turning the loan into a gift," Agarwal says. GreenNote charges lenders a 1% documentation fee. Borrowers pay $49 or 2% of the loan, whichever is greater. The risk? If your network doesn't kick in all you need, you'll have to shop around for other loans.

Zopa: When a student or parent applies for a loan, the site (zopa.com) runs a credit check. Zopa charges no fees but interest rates can be high -- some 8.5% to 17%, depending on a borrower's credit score. Where's the peer-to-peer angle? Borrowers can ask friends and family to purchase one-year CDs from the site. Those who do are required to devote at least 0.10% of the current yield of 3.75% to helping a borrower meet his or her monthly payments. Because some CD holders are willing to part with far more than 0.10%, a borrower may see his or her monthly interest payments wiped out. A few even pocket enough to help pay down principal. As with other CDs, these are insured against losses. And when they mature, the principal is returned to the investor. The loans, which must be repaid over five years, are capped at $25,000. This summer, the company plans to launch a student loan product with a longer repayment term.

Source : http://news.yahoo.com/

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When are Student Loans a Good Idea ?

Most students find their graduation day from a college or university to be ultimately fulfilling, as the day serves as a culmination to all the hard work and effort necessary to earn a degree. However, that feeling of self satisfaction soon fades as new alumni must deal with the repayment of their student loans. Many students find they dread their first loan payment more than the anxiety of entering the working world. But does a student have to borrow money from banks in order to finance his or her education? When are student loans a good idea?

Earning a degree is expensive. There is no way to candy coat that fact. Between tuition, room and board, books, and other necessary items, many students find themselves short of the final total. One way to save money when searching for a college education is to choose the institution wisely. Shop for an education the same way you would shop for a home or car. State-supported schools are less expensive than private institutions, and often the educational experience is exactly the same. There are many publications that make annual rankings of colleges according to their cost and the quality of education. Check to see if one of these institutions fits your needs.

Many students rely on parents, grandparents, or other individuals to help fund their education. Still in these cases, funds run short and loans need to be taken. Before you sign for a loan though, consider all other forms of financial assistance. Apply for scholarship programs or look into grants designated for students. Many organizations offer interest-free loans for students that quality. After you have made all the necessary calculations, think about the amount of money you will be able to put towards your education. Remember, just because you can receive a loan for the full amount of a college education does not necessarily mean you should. Money is easily borrowed, but is difficult to repay.

Higher education is a good idea, and if student loans enable you to earn a degree, then so be it. If entered into wisely, the bill at the end of the day will not be so daunting and you will be capable of repaying your debt.
http://educationseek.com/student_loans.html

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Student Loans by Wachovia

Banks and Your Educational Money
Like Citibank and other traditional banking institutions, Wachovia has expanded its services to include a well-stocked bar of educational products and services. Their Educaid site almost loses its Wachovia-bank veneer and takes on a hipper, trendier look to appeal to a college-centric audience that is a blend of students and parents searching for the college dream, accessible only with the best mix of student loans.

Loan Products
Like most other lending institutions, Wachovia is a participant in the Federal Stafford Loans and the suite of PLUS loans. Beyond these the company provides its brand of private student loan - the Wachovia Education Loan - designed with low interest rates and large margins for borrowing. This loan is credit based and is approved based on a variety of factors.

Alternative student loans include a specialized suite of TERI loans each designed for continuing education students, medical students, or loans for students attending college abroad.

Loan Account Management
Like any good banking institution the ability to manage your account online makes the services very convenient and flexible. This way students and parents can track loan payments and apply for services if needed. Extra services include student loan consolidation, and deferment options.

Consolidation and Deferment Options
In some cases graduates are not able to manage multiple student loan repayments that come due monthly. While the Federal loans offer either 6 or 9 months grace period past graduation, it is still not uncommon for college grads to run into trouble with repayment. To avoid instances of student loan default, most lending bodies make student loan consolidations a matter of regular business. Graduates can roll all student loans into one low monthly payment. Typically the refinancing extends the repayment period, but the affordability makes it worth the extension.

A number of deferment or loan postponements are possible with Wachovia. Students attending college half-time are eligible for student loan deferment as long as they are enrolled. Graduates who find themselves unemployed can qualify for a deferment; and students who are working, but earn an income that falls below the poverty level can qualify for hardship deferment.

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Benefits of Wachovia Student Loans

Wachovia student loans are essentially education loans taken out with Wachovia. That sounds simple enough, right? And while this aspect is pretty easy, the choices you have for student loans are vast. Without a bit of guidance, securing financing for your college career could get a bit sticky.

Wachovia can help you get a student loan in a couple of ways: federal loans and private loans.

Wachovia Student Loans: Federal
Many lenders work with the government to provide students with federal student loans that can cover your tuition costs without sinking you into inescapable debt. The types of federal loans Wachovia can provide include the Federal Stafford Loan, the Federal PLUS Loan and the Federal PLUS Loan for graduate students. Each of these loans has specific requirements, so you will need to read their terms carefully when applying. As with all federal aid, the application process begins by filling out the FAFSA. You don’t complete that step and you can kiss federal aid goodbye, in any form!

Wachovia Student Loans: Private
Wachovia also offers private student loans to help make up the difference in your tuition costs. You should always try to pay your way through school using federal grants, scholarships and loans first before resorting to a private loan. However, if you must do so, Wachovia has a special education loan program that takes the sting out of borrowing.

Wachovia Education Loan
Even though it is a private loan, the Wachovia Education Loan does offer some benefits that are not common to standard loans. For instance, you can borrow up to the amount of your college expenses, less any other financial aid you may have received, of course. You can also cosign with someone so your interest rate will be lower. No fees are charged as well, making more of your repayment money going straight to paying off the loan.

You also do not have to pay a cent during school! It is very much like a federal loan in this regard; however, you will be responsible for the interest that accrued while you were in school. You also have the option of paying while in school if you want to, which can help to lower the overall amount of interest you will need to pay. You also have up to 25 years to repay your Wachovia Education Loan.

Finally, you can apply online quickly and easily. There are no complicated forms to fill out, as this is not a federal loan, and you can get pre-approved within minutes. While you should always pursue federal funding when possible, borrowing from Wachovia is certainly not a bad option.

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When Repaying is a Nightmare: Student Loans and Alternatives

There are a number of ways to consolidate school student loans. You may have three separate student loans that have all come due, totaling a substantial amount of your income that makes it unaffordable to pay student loans, rent and other living expenses. Smaller payments are possible as is managing better.

Consolidating student loans can be done through the US Department of Education under the William D Ford Federal Direct Student loans program. There's a variety of repayment plans for student loans including income contingent that fluctuates to suit your yearly income. Their number is 1-800-848-0979.

For a stay-at-home mom who faces default if she doesn't pay her student loans immediately, you have the option of adding yours to that of your husband's school student loans. The monthly payments then decrease for the total student loans amount. You can also apply for economic hardship forbearance. Your income is reviewed once a year and monthly payments based on it.

The only other option could be to pay your school student loans with a high rate credit card. Forbearance, deferments and income contingent repayment for student loans plans are available in several options. Find out from your student loans holder what your options are. But remember that during forbearance and deferment, interest accumulates.

Sallie Mae is a good choice to consolidate federal student loans into one easy payment. Income sensitive, forbearance and other options are offered with a 15-year period to pay back. Your interest rates will be combined and averaged into a new one which though possibly higher than the current student loans can be as low as 6%. Contact Sally Mae for Smart Student Loans about qualifying at 1-800/524-9100 or www.salliemae.com. Eligible school student loans are combined into one new student loan with new terms and single monthly payment. The lower payments are due to Smart Student Loans account extending repayment of student loans term based on the amount owed, up to 30 years. Payments can be further reduced with interest-only payments for a few years. There's also a Flex Repay account.

When your student loan payments are more than you can afford, your student loans issuer can offer you options from consolidation to a step payment plan where you repay your student loans based on a percentage of your current income. While consolidation may be great, the repayment period of your student loans could take as much as 15 to 20 years according to the amount owed. Then there are temporary financial hardship forbearances when you can afford to pay nothing. The disadvantage is the accumulation of interest that continues while the student loans are in forbearance. It's best to find out from your student loans issuer whatever you options may be. But whatever it is, never default.

In a situation where you can't afford living expenses by paying student loans, ask the lender about hardship deferment to buy more time to increase income. Based on circumstances ask about forbearance too. What you need to avoid is default as it will give your children a next to zero chance of school student loans when they need them.

Most lenders dealing with borrowers are always willing to work out a method to be paid back. Not paying them will be a loss for all involved. A borrower expressing willingness to pay even a less amount or at a later time, is considered far better than the borrower who doesn't communicate at all. Therefore in case of difficulty, let them know.

Regular payments need to be made somehow or the other. Though toughest, financially it proves best in the long run. The more you pay now, the sooner you'll be free of debt. It's handy for buying you time to get other needs taken care of to be able to better afford student loans payments in the future. There may also be the option of interest-only payments to keep the interest from inflating your student loans amount. If your student loans debt is above a certain percentage of income, hardship forbearance at the very least can be filed for.

Several student loans can be consolidated into one student loan, usually with lower payments, particularly given low interest rates. But it may take a longer time to pay off. An address, phone number or even a form in your payment book or a bill to find out more details on the options offered. Also visit www.usagroup.com website for details of the options and calculators to work out the exact amount of savings possible.

Student loans consolidation or consolidation student loans is combination of different student and parent student loans into a bigger student loans from a single lender, which pays off the balances on the other student loans. Most federal student loans are covered including FFELP (Stafford, PLUS, and SLS), FISL, Perkins, Health Professional Student loans, NSL, HEAL, Guaranteed Student loans, and Direct student loans. Lenders may offer consolidation student loans for private student loans too.

With consolidation student loans the monthly payment is often lowered by means of an extension of the student loans term beyond the 10-year repayment student loans plan, a standard with federal student loans. Depending on the amount of the student loans, the extension may be from 12 to 30 years. The reduced monthly payment makes it easier to repay student loans for some borrowers. But in extending the student loans term, the total interest amount increases as well.

Graduated repayment of student loans makes payments lower for the first two years after graduation. With extended repayment of student loans, the term of the student loans is extended without consolidation. Each of the options raises the total interest amount paid but this difference is less than what consolidation offers.

sourc :
http://www.creditloan.com/when-repaying-is-a-nightmare-student-loans-and-alternatives.html

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The Consolidating Student Loans Not Always Best Option

WHEN IT WAS first introduced in the mid-1980s, student loan consolidation was touted as a much-needed solution for those struggling to pay their debts from college. Borrowers could combine their Stafford and Plus loans into one payment and lock in the prevailing interest rate — typically, one lower than the average rates that they were previously paying on their other loans.

Times have changed, however, and consolidation is no longer the cheap and attractive option that it used to be. Thanks to the declining federal funds rate and the phasing out of variable-rate loans, consolidating your student loans now will actually cost you more over the lifetime of the loan. Eventually, consolidation will come back into fashion for variable-rate loans (rates should be much more attractive when they reset in July). But it will probably never again be the least-expensive solution for those with fixed-rate loans.

Here are some ways borrowers can ensure they're getting the best deal. (We've included a glossary of student loan terms to help you along the way.)


Hold Onto Variable-Rate Stafford & Plus Loans for Now
If you're currently making payments on a variable-rate Stafford or Plus loan, don't consolidate for at least a few months, says Mark Kantrowitz, publisher of FinAid.org, an online source for student financial aid information.

Here's why: Federal loan interest rates are tied to the investment rate of the 91-day Treasury bill. To establish the price of the T-bill, auctions are held on a weekly basis. The last auction to occur in May of each year sets the base rate for student loans for the upcoming academic year and goes into effect come July 1. Last year's May 29 auction ended with a T-bill investment rate of 4.9%.

On top of the base rate, an additional interest rate gets tacked on to establish the federal student loan rates. For example, a 1.7% rate was added to the 4.9% to create the current interest rate for Stafford loans in the grace period (a grace period lasts up to six months after graduation). For Stafford loans in the repayment period, which starts once the grace period expires, a 2.3% rate was added to the base rate.

Since July 1 last year, the Federal Reserve has cut the fed-funds rate six times. These cuts have dramatically lowered the T-bill investment rate, which moves in tandem with the fed-funds rate. At the latest auction on March 17, the T-bill investment rate dropped to a mere 1.12%.

On the surface, this appears to be great news for those looking to consolidate. The problem is that any student consolidating now will be stuck paying the higher rate from last year.

Say you have a Stafford loan that's in the repayment period: Your rate is 7.22%. Consolidate now and you'll end up paying a slightly higher 7.25%. Wait until July 1 to consolidate, however, and rates will be near historic lows, says Kantrowitz. The chart below gives you an idea of how much borrowers holding variable rate loans can save if they wait until on or after July 1 to consolidate:

Don't forget that you have a month between the end of May when the base rate is set and July 1 when the new student loan rates go into effect to weigh your options. "If the impossible happened and...the T-bill rate was [rising], you'd...have the month of June to consolidate your loans with the old rates," says Sallie Mae spokesperson Martha Holler.


Don't Consolidate Fixed-Rate Loans
In the past, all student loans came with variable rates. If a borrower had difficulty making their payments, they could consolidate their loans into one low fixed-rate loan.

But as of July 1, 2006, every Stafford and Plus loan now carries a fixed interest rate, making it unnecessary to consolidate in order to lock in a set rate. In fact, borrowers who have fixed-rate loans should never consolidate them. If they do, they'll end up with a higher interest rate than they're already paying. Under consolidation, the interest rate will be the weighted average of the rates of the loans being consolidated, rounded up to the nearest 1/8 of 1%.

Subsidized Stafford loans taken out for the 2007-08 academic year carry an interest rate of 6.8%; the rate for 2008-09 loans is 6%, and for 2009-10, 5.6%. Unsubsidized loans will still carry a 6.8% fixed rate indefinitely. For Plus loans sold through the Direct Loan program, rates are fixed at 7.9%. Plus loans dispersed through the Federal Family Education Loan (FFEL) program carry an 8.5% rate.

http://www.smartmoney.com/consumer/?story=20080319-student-loans

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The Student Loan Companies Are Beneficial For A Student.

The Student loans are widely available in the loan market of UK. These loans offer sound financial solution to all those students who seek financial support to cater their needs. Now while going for student loan, a student should always select the appropriate source from where he/she can earn maximum benefits. Considering this state, student loan companies have emerged in the loan market of UK which offers flexible opportunities to all students opting for loans of their choice.

Student loan company can assist a student in many ways such as:
They can offer a good amount of money to students with which the needs of students can easily be fulfilled.
Experts of student loan companies understand the problems a student might face and also respect their potentiality. Driven by this, they usually offer sound loan solution. They offer such loans to students which can be utilized for fulfilling any of the personal needs of students. With the help of student loan company and with financial assistance from student loan, a student can utilize the loaned amount to buy a new good, to renovate home, to buy cycle etc.

The Student loan companies also play a pivotal role in offering debt consolidation support to students. Experts of student loan companies guide a student thoroughly to help him fusing all outstanding debts in to one single manageable loan.

Best way to access student loan company is World Wide Web. Here a student can avail maximum benefits such as:
Quick accessibility to sources.
Accomplishment of everything at the comfort of his own home.
A chance to meet top student loan companies of the world who are in this field for decades. Except these, online method has many other benefits in store for a student who wants to take his pick through student loan companies.


By Julia Russell

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Four Strategies to Help with Student Loan Debt

Traditionally, students throw mortarboards into the air when they graduate. For many college students, graduation is also a time when they begin throwing their money away by not repaying student loans properly.

After suffering through years of cramped apartments and ramen noodle diners, most college graduates are eager to get a job and start earning money. One more lesson, however, must be learned. Students need to understand the correct way to repay their student loans. To effectively manage their debt, grads should follow these five strategies:


1. Pay on time or call your lender

New jobs and salaries also mean more financial responsibilities. Sometimes, a loan payment gets missed in the transition. To keep their credit reports unmarred, many graduates opt for an automatic repayment plan. This simple procedure automatically deducts the loan payment from a checking or savings account.

If a financial setback makes a late payment unavoidable, contact your lender and explain the situation. You may be able to work out a plan to deal with short-term problems. If you say nothing and the loan goes into default, you face serious legal and financial problems.


2. Choose the right repayment option

As graduates get a handle on their cash flow, they can pick out the best loan repayment option. People in low-paying, entry level jobs may opt for income-sensitive repayment programs that align a monthly payment with their income. For those earning a heftier salary, a better fit is the standard repayment option with fixed payments and low interest costs. Watch out for interest-only payments that shrink monthly obligations but don't reduce debt over the long haul.


3. Consider consolidation

Debt consolidation is a great choice if you have more than $10,000 in loans at rates higher than current market interest rates. Be aware that the move can extend the term of your loan repayment, so make sure that you understand how much you'll be spending in long-term interest. Also, avoid combining government loans with private loans. You'll negate federal benefits such as deferment or subsidized rates.


4. Don't repay right away

Life after school isn't always rosy. Unemployment, economic hardship, or a desire to return to school can crimp your ability to repay your student loan.

You do have options. Deferment, for example, allows you to stop making payments for a specified period of time. There's a three-year limit for cases of economic hardship, but the time is unlimited if you re-enroll in school. You can also choose forbearance. Reserved only for cases of severe hardship, forbearance is granted in yearly increments. In either case, interest continues to accrue on all student loans.

A diploma in hand doesn't mean a student's education is finished. Students should study all the repayment and consolidation options, if financial times get tough. The learning curve can be unforgiving out in the real world. Smart graduates will improve their debt management IQs by learning how to best repay their student loans.
By: Greg Mischio

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Five Ideas for Saving Money on Student Loans

Student loans provide the springboard for bright careers and higher earnings. They can also drag a young professional deep into a financial hole if his repayment isn't managed wisely.

Enthusiasm abounds for college graduates. Exciting career opportunities await-including potential for high earnings, interesting travel and, if you're lucky, a really nice parking space. It sounds rosy, but there's a thorny side to the story: Student loans, which graduates sometimes forget, need to be repaid.

Student loans can provide a financial education outside the classroom. Learn how to shrewdly manage your loans, and you'll develop an understanding of debt management that will benefit you for the rest of your life. Here are five ideas to get you started on the road to repayment:



1. Consolidate

If your loans are at rates higher than what's currently on the market, consolidation might be an option. Combining all your student debts into one loan can significantly reduce your monthly payment-but it may extend the term of the loan. Avoid consolidation unless you have in excess of $10,000 in student loans, and be careful not to mix private loans with government ones. If you combine the two, you lose federal benefits such as deferments and subsidized interest.


2. Automate payments

With your hectic everyday pace, it's easy to miss a bill payment now and then. Late paying wreaks havoc on your credit score. Avoid this dilemma by setting up automatic bill payments. Your monthly bill will be deducted automatically from your savings or checking account. As an added bonus, many lenders offer a reduced interest rate for loans with automatic deduction.


3. Don't be late

Arriving late to a party may be fashionable, but if your payment arrives late, your credit score suffers. If financial woes are causing you to fall behind on your bills, contact your lender immediately. Work with them to find a solution to get you over any short-term hurdles.


4. Look for cash incentives

Many lenders offer cash incentives for good repayment performance. Make 12 payments in a row, for example, and a lender may credit $1,000 to your account. Research various lenders to find the best cash-back program.


5. Choose the right repayment option

Many different types exist; be sure to pick one that fits your financial situation. Options include:

Standard repayment: Monthly payments are fixed up to 30 years. This option offers the lowest overall interest costs.

Income sensitive repayment: Monthly payments adjust annually based on your income. The more you make, the faster your loan gets paid off.

Graduated repayment: Initial repayment amounts start out low, and then steadily rise during the life of the loan.

Brighter grads will learn to view their loans as more of an opportunity than an albatross. Instead of focusing all your attention on investments and 401(k) programs, consider the above methods for repaying your student loans. A penny saved is a penny earned, a fact that holds true for anyone who understands the value of effective debt management.
By: Greg Mischio

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Student Loans: Outlook 2008

Scandal rocked the student loan industry in 2007-what's on tap for 2008?

When Jackie, the TV weather person, gives her prediction for the week, you don't expect her to mention what's happening in the student loan industry. That's a good thing, because the outlook might involve lingering thunderstorms and high-pressure systems, as colleges and lenders try to rebound from some bad business that was uncovered last year.

Student loans and scandal


In 2007, the student loan industry was marred by scandal. Some colleges and universities were found to have revenue-sharing agreements with lenders who were receiving financial kickbacks for funneling their students to only one lender. As a result, nearly 1,000 colleges and universities received letters from the Federal Student Aid office (FSA) reminding them of their responsibility to provide students with several lender options. A few months after sending the initial batch of letters, the FSA followed up with 55 colleges and 23 lenders, asking for further documentation of their student loan activity.

Stricter standards


In the aftermath of last year's scandal, colleges and student lenders can expect 2008 to be characterized by stricter interpretation of existing legislation, further scrutiny into college records and, possibly, enforcement actions to protect a student's right to choose his own lender.

The Higher Education Act of 1965 (HEA) doesn't permit colleges to receive payments from lenders in exchange for student loan applications. The exact definition of what constitutes an enforceable violation, however, is open to interpretation. Traditionally, the FSA has acted on the belief that a violation happens when the lender gives the incentive specifically in return for exclusive student referrals. But the lender has been allowed to provide schools with other types of incentives, such as those intended to further the lender's advertising, branding, or goodwill objectives.

A lender's burden


In the latter part of 2007, the FSA announced that a new interpretation of the HEA will take effect in July, 2008. Under the new interpretation, the FSA places the burden on the lender to prove that payments made to colleges were not for the purposes of obtaining student loan applications. This burden of proof may make it difficult for lenders to partner with colleges on any type of business development program.

The FSA might also start conducting more on-site reviews of a college's financial aid records, as well as their business dealings with lenders. These examinations may go as far as reviewing relationships between lenders and affiliate groups, such as alumni organizations. While the existing federal legislation doesn't prohibit arrangements made between lenders and affiliate groups, at least one lender in 2007 was forced to stop paying an alumni group for exclusive student loan referrals.

Where schools or lenders are found to be non-compliant, the FSA may initiate action to suspend or terminate that entity's participation in the Federal Family Education Loan Program (FFEL). Hopefully, such measures can be avoided, because the students will be the ones to get stuck in the downpour.

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Credit Crisis will Affect Student Loans

Many students enter school with the hopes of bettering themselves and earning more income. A recent announcement by Sallie Mae that they'll no longer make loans to subprime borrowers may throw a wrench in the goals of many students, particularly those with bad credit.

Throw a pebble into a pond, and you'll see gentle ripples expand in concentric circles. The subprime lending crisis has been the equivalent of throwing a cinder block into that pond. It's sent out a tidal wave of trouble, and student loans are the latest financial product to get hit.

Sallie Mae, the nation's number one lender for college students, recently announced it will no longer make private education loans to students who are subprime borrowers. "Subprime" is classified as a person who's a high credit risk, and either made late payments on a credit card or loan, or carries too much debt.

Private loans to feel the most impact


For-profit education institutions, such as culinary schools, design academies, and trade schools, will feel the brunt of Sallie Mae's announcement. These institutions rely heavily on subprime borrowers for their enrollment.

The impact will not be as profound at non-profit colleges and universities. These types of institutions benefit from a higher number of grants and government financial aid. Nevertheless, with private loans making up nearly a quarter of all education loans, the ripple effect will likely occur.

Adapting to a new financial order


Just like the real estate and mortgage lending industry has adapted to new market conditions, educational institutions are likely to do the same. Many have already begun exploring ways to self-fund their own private loans, a prospect that may even add revenue, provided that they don't make the same mistakes as the home lending sector.

How can private educational institutions avoid the same problems that are currently plaguing lenders like Sallie Mae? First and foremost, they should be careful to follow solid lending fundamentals. The lending institutions that have suffered losses are the ones that have extended loans to people with horrendous credit. By tightening lending guidelines, lenders can steer clear of student loan defaults.

Student adaptation


How will subprime students fare in this new financial order? Undoubtedly, it will be a struggle. Students will have to do more research to find a lender that will work with them. But with private educational institutions beginning to provide their own loans, they actually stand a better chance of getting a loan at a reasonable rate, rather than being raked over the coals by unscrupulous lenders.

Ultimately, cleaning up the student loan pool is a task that must be shared by both lenders and students. Tighter guidelines will prevent future defaults. For students, sound money management will help them raise their credit scores. Hopefully, these changes will allow students not only to qualify for better loans, but also give them access to a better life.

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Overview of Student Loans

When you're trying to pay for college, it's nice to turn to a wealthy uncle for a little financial assistance. No one is happier to help you pay for your higher education than Uncle Sam and the federal government.

You can tell a lot about a society by how much it values education. With its vast network of public and private universities, America is a world-leader in education.

Our emphasis on higher learning could be attributed to the correlation between education and economic growth. If the U.S. is going to keep its economy running at full speed, it needs an intelligent workforce. Higher education doesn't come cheap, however, so the federal government has created a number of student loan programs.



Perkins loans

Available to undergraduate and graduate students alike, Perkins loans offer the lowest interest rate-currently fixed at 5 percent-and can take up to 10 years to repay. Your school acts as the lender, and the loans are given on a first-come, first-served basis.

It's a particularly attractive loan for people in the military, law enforcement, certain teaching positions, and non-profit jobs. If you pursue a career in these public service fields, the government may discharge your loan.


Stafford loans

Stafford Loans are provided to undergraduates and graduate students who are enrolled in school at least half-time. Unlike Perkins loans, the government will partially subsidize the money based on a student's level of financial need. Uncle Sam will pay the interest during school years, but the student must begin repaying the loan six months after graduation. In the unsubsidized loan, a student loses his six-month grace period.

Loans are made available directly from the government to colleges or financial institutions. Current rates for Stafford loans are capped at 6.8 percent. Terms of repayment range from 10 to 25 years on both the subsidized and unsubsidized loans.


PLUS loans

Like the Stafford Loans, PLUS loans are granted to undergraduates and graduates who are enrolled at least half-time. With PLUS Loans, the interest rates are variable, but they do have a cap. Loans distributed directly by the government are capped at 7.9 percent, and those distributed through a school or a lender are capped at 8.5 percent. There's also a fee associated with the PLUS loans. Repayment terms are 10 years, and you must begin within 60 days after the final loan is disbursed.

To obtain any of these loans, a student first needs to apply for the Free Application for Federal Student Aid, or FAFSA.

Even though the government values education, it can't give a free ride to everyone. The loan programs are based on a student's financial need, which may be the cause for the wide number of programs. If you're confused, consult with a financial aid counselor or a loan officer from a lending institution, and you'll find out where you fall in the student loan spectrum.

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Colleges recommending lenders to students must adhere to stricter guidelines

By Jodi S. Cohen , Chicago Tribune

CHICAGO - Beginning next school year, colleges that recommend specific lenders to their students must list at least three unaffiliated companies and disclose how they were chosen - reforms prompted by a wide-ranging investigation of student loans that has tripped up universities in Illinois and across the nation.

A final version of the new U.S. Department of Education regulations, which will be published in early November and go into effect in July, also will make it clear that college administrators cannot accept gifts, payments or other perks from lenders eager to get business at the campuses, Education Secretary Margaret Spellings and other officials told reporters during a conference call Wednesday.

"We encourage participants to start adopting these practices sooner rather than later," said Sara Martinez Tucker, Education Dept. undersecretary.

The new rules, similar to those pending in Congress, come toward the end of a year marked by scandals in the student loan industry. The Education Department has come under pressure to beef up its oversight, after numerous revelations of cozy relationships between colleges and lenders.

State and federal investigations found instances where financial aid officials held stock in companies on their universities' preferred-lender lists. In other cases, colleges and universities were receiving fees from lenders based on the number of students' loans.

The new rules for the first time mandate that colleges with preferred lender lists include a minimum number of companies. Critics have said that colleges used the lists to steer students to specific lenders, while supporters of such lists said they protected students by pointing them to reputable companies.

Campuses could be fined or barred from participating in the federal lending program, known as FFEL, if they violate the department's student loan policies.

Earlier this year, the Education Department sent warning letters to 921 colleges and universities where 80 percent of the federal student loan volume in 2006-2007 was handled by one lender. The letters reminded officials not to limit student choice in picking a lender.

Education Department officials said Wednesday that they sent 55 of those schools another letter on Oct. 24 requesting more information about their arrangements with lenders. At 48 of those schools, where federal loan volume exceeded $10 million a year, 95 percent of the loans went to one lender.

The letters went to schools where students had more than $10 million in federal loans last year. The Education Department did not provide a list of the schools.

The letters, also sent to 23 lenders, request copies of any agreements between colleges and lenders; information about cash, stock or other perks provided to college officials or the institutions; and the names of any college employees who served on lender advisory boards.

"We are not accusing them of anything illegal at this point in time," Tucker said.



(c) 2007, Chicago Tribune.

Visit the Chicago Tribune on the Internet at http://www.chicagotribune.com/

Distributed by McClatchy-Tribune Information Services.

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