Private Student Loans: Proceed With Caution

Student Loan Girl — Mon, 04 May 2009 21:07:00 GMT

Although the government has taken steps to bolster the federal student loan program by expanding Pell Grant awards and raising the maximum award amount of federal Stafford student loans, federal financial aid will still not be enough for many families to pay for college this year.

Grappling with stock market losses that have negatively affected 529 college savings plans and with declining home values that have essentially made home equity loans nonexistent, families of college students will likely have to rely more on private student loans, in addition to federal aid, this year to help pay for their education expenses, reports The New York Times (“Students’ First Lesson: Beware Loans’ Fine Print", May 2, 2009).

But the Times warns that private student loan borrowers need to be particularly cautious when applying for loans.

Private student loan lenders can set their own loan terms and aren’t required to inform their borrowers of the loans rates, fees, and terms. Citing data compiled by Student Lending Analytics, a company that helps schools analyze lending programs, the Times advises families applying for private student loans to weigh their options carefully and to take a close look at the fine print.

Interest Rates Vary From Lender to Lender

Unlike federal student loans, which have fixed interest rates, private student loans carry an average interest rate of 11 percent, according to Student Lending Analytics. However, lenders charge interest rates higher than 11 percent and, in some cases, won’t disclose the interest rate a borrower will be charged until after a borrower signs a promissory note.

Banks offer fixed-rate loans ranging from 7 percent to 12 percent, with big banks charging the highest rates. But at times, banks — particularly JPMorgan Chase, PNC Financial, and SunTrust Bank — hike up the rates on these loans by two to three percentage points if a borrower misses just one loan payment.

The variable-rate loans that private lenders offer can be tied to a specified interest rate index, like the prime rate, and their rates can vary depending on the changes to rate index. Chase, for example, charges interest as high as 13.5 percent on these loans.

Lenders Should Disclose All Fees

Tim Ranzetta, the founder of Student Lending Analytics, says lenders should be required to disclose any adjustments they make to an interest rate when a borrower misses a payment or when any other negative activity takes place on a borrower’s account.

Currently, lenders don’t disclose all the possible fees borrowers may be charged in the servicing and collection of their student loans, and lenders’ loan contracts don’t always inform borrowers of the borrower benefits promised in the lender advertisements, including the possibility of a borrower being charged a lower interest rate after graduation.

Ranzetta says, in addition to demanding that lenders fully disclose their loan terms, lenders should also be required to list their advertised benefits in the promissory note in order to contractually obligate lenders to offer their benefits.

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Harvard Inks Custom Loan Deal to Help International Graduate Students

Student Loan Girl — Tue, 03 Mar 2009 23:47:00 GMT

At a time when large numbers of lenders exiting the student loan marketplace has made it more difficult for international students to find college and graduate school funding, Harvard has announced an exclusive agreement with JPMorgan Chase that will allow the school’s international graduate students to borrow up to the full cost of attendance without a co-signer, reports The Harvard Crimson (“Harvard Strikes Loan Deal,” March 2, 2009).

Considered the first deal of its kind for the banking giant, the new private loan agreement may make it easier for international students — who are ineligible for U.S. federal financial aid — to get the money they need for school.

The JPMorgan deal was arranged after Citibank announced it would no longer offer loans to Harvard’s international graduate students in October of last year, citing the frozen credit markets and higher loan default rates among international students compared to their American counterparts.

Citibank also cancelled similar arrangements with MIT and the University of Michigan, The Harvard Crimson reports.

Harvard’s arrangement with JPMorgan is part of the school’s pledge to maintain its current levels of graduate student aid for the next school year even at the expense of other programs, says Harvard President Drew Faust — a commitment she deems one of the university’s top priorities.

The university has also unveiled several expanded financial aid programs, including those for Harvard Law School and Harvard Medical School, as part of its renewed commitment to meeting student need.

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Student Loan Blog : JPMorgan Chase, federal financial aid

Private Student Loans: Proceed With Caution

Harvard Inks Custom Loan Deal to Help International Graduate Students