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With college costs rising faster than family income and grant resources combined, there is a good chance your financial aid package will turn out to be less generous than you had hoped. This could leave you little choice but to borrow more money to pay tuition bills and commercial lenders are only too happy to be of service. Families can now choose from hundreds of alternative loan options, each with varying finance charges, interest rates, interest capitalization schedules, borrowing limits, disbursement schedules, incentives, and repayment options. It’s no wonder even the savviest families are overwhelmed trying to evaluate which option is best for them. Our Advice? First, ask your college whether it has any recommendations. Many aid administrators have already evaluated the options, and may favor one or two sources. Some schools (especially those with financially-successful, debt-free graduates) even work out special deals with lenders by offering to share default risks.Second, ask the lender for sample repayment schedules, and read the fine print. Compare Annual Percentage Rates (APRs). Make sure they were calculated using current interest rates. They change fairly often as lenders compete for your business. (Most lenders have web sites that include these repayments schedules.) As you evaluate options, remember that interest payments during your first five years of repayment might be tax deductible. Third, consider home equity loans or Uncle’s PLUS loan. You’ll often find the interest rates to be substantially lower than commercial rates. If, however, you don’t like the idea of borrowing against your home, or dealing with Uncle Sam, here are some of the largest commercial sources: Lender SitesBank of America CitiBank CitiAssist allows undergraduates to borrow up to $10,000/year to a maximum of $50,000. The interest rate equals the prime plus 1%. Students pay no fees, and have up to 12 years to repay. GATE Guaranteed Access to Education. The interest rate is tied to the 3-month LIBOR. Key Education Resources The Achiever Loan lets parents borrow from $2,000 up to the total cost of college with 20 years to repay. The interest rate equals the 13-week T-bill plus either 3.95% or 4.5% depending on the selected repayment option. Families pay a 2% - 4% loan fee. The Key Alternative Loan lets students borrow up to $10,000 per year to a maximum of $50,000. The interest rate equals the 52-week T-bill plus 3.1% while in school (3.25% during repayment). Families pay a 4% loan fee (9% if they don’t have a co-signer). NELLIE MAE The New England Loan Marketing Association (Nellie Mae) offers EXCEL and GradEXCEL. Families may borrow from $2,000 up to the cost of college less any financial aid. The interest rate equals the prime plus .75% adjusted monthly. Families pay a 7% guarantee fee and have 20 years to repay. Norwest Norwest offers the Wells Fargo Collegiate Loan which lets you borrow up to $15,000 per year to a maximum of $80,000. The interest rate equals the 91-day T-bill plus 3.25%, reduced by .25% for using an automatic payment plan, and an additional .5% after making 48 on-time payments. Students pay a 3% origination fee and have 15 years to repay. Students who attend low-default schools may receive better terms. PLATO Classic Student Loan lets you borrow up to $25,000 per year. The interest rate equals the prime. Students pay a 7.5% origination fee and have 20 years to repay. SALLIE MAE The Signature Student Loan lets students borrow up to the cost of college less any financial aid. The interest rate equals the prime plus .5% reduced by .25% if you use an automatic payment plan. After four years of on-time repayment, this rate decreases by another .5%. Families pay no fees and have 15 years to repay. TERI The Education Resource Institute (TERI) lets you borrow up to the cost of college less any financial aid. The interest rate equals the prime. Families pay a 5% guarantee fee (or 6.5% if they choose to defer interest and principal payments until graduation) and have 25 years to repay. TERI also sponsors loans for graduate students, students pursuing a second undergraduate degree, and part-timers. US Bank US BANK lets you borrow up to the cost of college less any financial aid. The interest rate equals the prime plus .75%, reduced by .25% if you use an automatic payment plan (and an additional .25% if your automatic payments come from a US Bank account). After 48 months of on-time payments, borrowers receive a .5% reduction on the remaining balance. Students pay a 6% origination fee and have 10 years to repay. eStudentLoan This site evaluates several major commercial loan programs to determine which one might be best for your family, and then allows you to apply on-line. You begin by answering a few questions about your intended school, the size loan you will need, and which features are most important to you, for example, lowest APR, lowest overall payment, etc. LoanFinder then matches your specific situation to a dozen or so loan programs and displays the one that it determines best fits your requirements. Unfortunately, users of the (free) service cannot be certain which loans have been evaluated, nor can they see any side-by-side comparison, in case they are curious about the terms of additional programs. Department of Education In mid-February, the Department of Education hopes to launch a web site that will make comparing all these loan options easier. The site will be limited to lenders with a national scope. Furthermore, visitors will be asked to "grade" each of the linked sites they visit, and sites with failing grades (who do not respond to the criticism satisfactorily) will be unlinked.
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