Tips on Getting Private Student Loans

By: Gaurav Bhola, MSM, Managing Editor

College students and their families have started their search for student loans. Due to the lack of liquidity in the credit markets, school students have had difficulty accessing student loans. In the last few months, many college loan lenders have announced that they are suspending or eliminating student loan programs. Recently, over 37 student loan lenders have exited or suspended their involvement in the federally guaranteed Federal Family Education Loan Program. This is the result of the collapse of auction rate securities and the residual effects of the subprime mortgage crisis. Herein, the students and their families have to learn ways to seek out loans from private school lenders.

As more and more loan companies exit the government loan program, educational lending has entered a precarious position. Now more students will turn to private lenders to finance their education. The main difference between federal student loans and private loans is that interest rates are fixed for life by the government on federal student loans.

It is always best to first exhaust subsidized and unsubsidized Stafford loans and the Parent PLUS loans before applying for private loans. While federal loans are helpful up to a point, private loans have now become necessary. In this time of economic downturn, many parents are being denied Federal PLUS loans due to their credit history. A credit history includes foreclosures, bankruptcy, or being late by more than 90 days on debt repayment.

If Stafford loans aren’t able to meet your comprehensive financial aid needs then apply for private loans to make up the difference. Additionally, for international students, private loans are the only viable option as these students are not allowed to apply for federal student loan programs. Private loans are a valuable resource for non-dependent students as well.

In addition to searching for private loans at the college and university financial aid office, now you can apply online. There are two forms of private student loans offered to university students: school-certified and non-school-certified. The interest rates and fees are usually lower for school-certified student loans. You can go to premierstudentloan.com to get competitive private loan quotes.

Most people don’t realize that every time you apply for a loan, your credit score is reduced by five points. The private loan lenders have five or six tiers of varying interest rates and fees that are offered to the borrower based on their credit score.

Applying to nine or ten loan lenders could lower your credit score, thus increase your loan interest rate. Ideally, you want to apply to three or four private loans. Also, consider using a co-signer with good credit to get more favorable loan terms. Hopefully, now you can make more informed decisions regarding your private loan.

 

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.

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