| 
  • If you are citizen of an European Union member nation, you may not use this service unless you are at least 16 years old.

  • You already know Dokkio is an AI-powered assistant to organize & manage your digital files & messages. Very soon, Dokkio will support Outlook as well as One Drive. Check it out today!

View
 

student loan

Page history last edited by PBworks 15 years, 8 months ago

Student Loans

 


 

Idea

 

Lend to students that are going to graduate and get good jobs.

 

Private student loan (United States)

 

A private student loan is a financing option for higher education in the United States that can either supplement or replace federally guaranteed loans such as Stafford loans, Perkins loans and PLUS loans. These are unsecured loans with various options for repayment and may offer forbearance and deferral options.

 

Interest rates are set by the financial institution that underwrites the loan, typically based on the perceived risk that the borrower may be delinquent or in default of payments of the loan. The underwriting decision is complicated by the fact that students often do not have a credit history that would otherwise indicate creditworthiness. As a result, interest rates may vary considerably across lenders.

 

Because private student loans are subject to special treatment in the event of a personal bankruptcy, students may not incur a total debt in excess of the cost of attendance, taking into account scholarships, fellowships, federal loans and private loans.

 

A number of financial institutions offer private student loans, including large banks (e.g., Citibank, Bank of America, and Wachovia) and specialized companies (e.g., Sallie Mae, MyRichUncle, Astrive Student Loans, Act Education Loans). Financial aid offices in universities typically have a preferred vendor list, but borrowers are free to obtain loans wherever they can find the most favorable terms.

 

Buying factors include:

 

  • Interest rates throughout the life of the loan - lenders may accrue interest at one rate while the student is in school and another after graduation
  • Payment options - lenders typically offer loans that are payable immediately, interest-only loans while the student is enrolled, and no-payment loans until graduation
  • Incentives - lenders may offer improved or tougher terms based on the student's payment record
  • Origination fees - lenders typically charge a fee for originating the loan that is added to the principal of the loan.

 

The total cost of the loan is usually document in the Truth in Lending statement that is issued when the loan is originated.

 

Pre Prime loans

 

Preprime: A unique evaluation system created by MyRichUncle. It allows those borrowers who lack a credit history or who don’t have a creditworthy co-borrower to have a chance at approval based on their merits as a student, including GPA, school, and program of study.

 

 

 

New Rules

 

The College Cost Reduction Act of 2007 will provide the single largest investment in higher education since the GI bill. And it will do so at no new cost to taxpayers, by cutting excess

subsidies paid by the federal government to lenders in the student loan industry.  This new investment is critically important. College costs have grown nearly 40 percent in the

last five years.

 

Main point - it eliminates the subsidies paid to PRIVATE lenders....in effect wiping out the private lending industry

 

 

 

 

Companies

 

Sallie Mae

MyRichUncle

The College Board

EduCap

Nelnet

Citibank  Citi Assist  (great site, easy to use)

To find more companies, google-search for: "alternative student loans"

 

see also: credit-worthy, raising money, Stafford loans

 

 

Controversies

 

In February, 2007, New York Attorney General Andrew Cuomo launched an investigation into alleged deceptive lending practices by student loan providers, including The College Board, EduCap, Nelnet, Citibank, and Sallie Mae. On April 11, 2007, Cuomo ended his investigation of Sallie Mae and announced that Sallie Mae had voluntarily agreed to change its lending standards to satisfy a new code of conduct for student loan practices established by Cuomo and donate $2 million (USD) to a fund devoted to educating college bound students about their loan options.

 

Many Internet sites document problems with Sallie Mae customer service and repeated, multiple telephone calls each day, even to people who aren't Sallie Mae borrowers or co-signers. Sallie Mae is extremely aggressive in its collection procedures.

 

 

peer to peer lending for student loans....hey, why didnt i think of that!

 

 

peer-to-peer lending lending for student loans....someone is launching with that idea.  But, remember.... we decided not to do this because we decided it would never work.  Why? because this business model is going up against government subsidized student loans (not a level playing field), and it would be impossible to get peer-to-peer rates that low. 

 

This guy poured $500,000 of his own money into it....was it a waste of money? 

 

 

Fynanz: How Students Spell Peer-to-Peer Loans

Posted: 19 Mar 2008 07:26 AM CDT

fynanz-logo.pngThere is a new way to spell peer-to-peer lending: Fynanz. While you or I might not entrust the financing of our college education to a company that cannot spell, the txt-happy generation might go for it. And if they can find college loans at lower rates than at a bank, who cares?  Fynanz launched quietly on Monday. It wants to apply the peer-to-peer lending model (see Prosper, Zopa, Lending Club, and Qifang in China) to student loans. Right now, only students who are residents of Florida or New York can apply for a loan, but that will expand to the entire country later this year. Anyone can become a lender.  Unlike Prosper or other P2P lending sites, Fynanze guarantees each loan. And since they are qualified educational loans, the students can deduct the interest from their taxes once they start paying back. To reduce its risk, the startup looks at other factors in addition to credit scores when evaluating each student borrower, including grade point averages and what school the student is attending. Says CEO Chirag Chaman, a former banker who put up $500,000 in seed money to get the startup off the ground:

We looked at 15 years worth of data to create an underwriting model specific to student loans. We now what are the factors that reduce default rates. I was doing structured loans at Citibank.

You can think of it as securitization for the masses, but I am removing investment banks from the process.

 

The loans are co-payable to the school, and Fynanz takes into account tuition and other expenses to make sure students don't take out more than they actually need. "It is not for your spring break," says Chaman. By cutting out the banks, he thinks he will be able to find individual lenders willing to offer loans that are 0.60% to 1.0% lower than what a student would get from a bank. (And that is after Fynanze takes a 1% fee for its guarantee fund).

 

With interest rates coming down, though, in response to the Fed's recent interest-rate cuts, it is going to be tough to compete with the big banks. But the focus on student loans should reduce the shelter Fynanz in comparison to other P2P startups with a broader loan portfolio (Student loans tend to have lower default rates than most consumer loans).

Prosper

 

 

 

More News

 

 

High-Priced Student Loans Spell Trouble (AP)

Sunday September 30, 2:14 pm ET

By Marcy Gordon, AP Business Writer

Explosion in High-Priced Student Loans Sow Seeds of Trouble for U.S. Economic Growth

 

The near doubling in the cost of a college degree the past decade has produced an explosion in high-priced student loans that could haunt the U.S. economy for years.

 

While scholarship, grant money and government-backed student loans -- whose interest rates are capped -- have taken up some of the slack, many families and individual students have turned to private loans, which carry fees and interest rates that are often variable and up to 20 percent.

 

Many in the next generation of workers will be so debt-burdened they will have to delay home purchases, limit vacations, even eat out less to pay loans off on time.

 

Kristin Cole, 30, who graduated from Michigan State University's law school and lives in Grand Rapids, Mich., owes $150,000 in private and government-backed student loans. Her monthly payment of $660, which consumes a quarter of her take-home pay, is scheduled to jump to $800 in a year or so, confronting her with stark financial choices.

 

"I could never buy a house. I can't travel; I can't do anything," she said. "I feel like a prisoner."

 

A legal aid worker, Cole said she may need to get a job at a law firm, "doing something that I'm not real dedicated to, just for the sake of being able to live."

 

Parents are still the primary source of funds for many students, but the dynamics were radically altered in recent years as tuition costs soared and sources of readily available and more costly private financing made higher education seemingly available to anyone willing to sign a loan application.

 

Students with no credit history and no relatives to co-sign loans (or co-signing parents with tarnished credit) were willing to bet that high-priced loans were a trade-off for a shot at the American dream. But high-paying jobs are proving elusive for many graduates.

 

"This is literally a new form of indenture ... something that every American parent should be scared of," said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.

 

More than $17 billion in private student loans were issued last year, up from $4 billion a year in 2001. Outstanding student borrowing jumped from $38 billion in 1995 to $85 billion last year, according to experts and lawmakers.

 

Rocketing tuition fees made borrowing that much more appealing. Consumer prices on average rose less than 29 percent over the past 10 years while tuition, fees, and room and board at four-year public colleges and universities soared 79 percent to $12,796 a year and 65 percent to $30,367 a year at private institutions, according to the College Board.

 

Scholarship and grant money have increased, yet for almost 15 years, the maximum available per person in government-guaranteed student loans, which by law can't charge rates above 6.8 percent, has remained at $23,000 total for four years. That's less than half the average four-year tuition, room and board of $51,000 at public colleges and $121,000 at private institutions.

 

Sallie Mae, formally known as SLM Corp., has been on the winning side of the loan bonanza. Its portfolio of 10 million customers includes $25 billion in private and $128 billion in government-backed education loans. However, private-equity investors who had offered $25 billion to buy the company backed out last week, citing credit market weakness and a new law cutting billions of dollars in subsidies to student lenders.

 

Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Wachovia Corp. and Regions Financial Corp. are also big players in the private student loan business. And there has been an explosion in specialized student loan lenders, such as EduCap, Nelnet Inc., NextStudent Inc., Student Loan Corp., College Loan Corp., CIT Group Inc. and Education Finance Partners Inc.

 

The question is whether everyone who borrowed will be able to repay. Experts don't track default rates on private student loans, but many predict sharp increases in years to come.

 

Dr. Paul-Henry Zottola, a 35-year-old periodontist in Rocky Hill, Conn., faces paying $1,600 a month on his student loan on top of a $2,300 mortgage payment and $1,500 on the loan he took out to start his practice.

 

His credit record remains solid but he owes more than $300,000 in student loans as he and his wife, Heather, an elementary school administrator, raise two young children.

 

"It would be very easy to feel crushed by it," Zottola said in an interview. "All my income for the next 10 years is spoken for."

 

Meanwhile, complaints about marketing of private loans -- like ads promising to approve loans worth $50,000 in just minutes -- are on the rise. The complaints have made their way to lawmakers, who see a need to regulate the highly profitable and diverse group of companies and the loans they make to college students.

 

In August, the Senate Banking Committee approved a bill that would mandate clearer disclosure of rates and terms on private student loans. The bill also would require a 30-day comparison shopping period after loan approval, during which time the offer terms could not be altered.

 

New York Attorney General Andrew Cuomo said many graduates who borrowed owe as much if not more than most homeowners owe on mortgages. Unlike mortgages with clear consumer disclosure requirements -- even from nonbank lenders, private lending is "the Wild West of the student loan industry," he said in a telephone interview.

 

Critics say what happened in the mortgage market could happen in the student loan market. Cuomo, who conducted a nationwide investigation, said the parallels between the two markets are "provocative."

 

Demand for bundled student loans sold to institutional investors worldwide fueled lending to students. The market for private student loan-backed securities leapt 76 percent last year, to $16.6 billion, from $9.4 billion in 2005, according to Moody's Investors Service.

 

The student loan-backed securities market has yet to suffer noticeable effects of a global credit squeeze that was triggered this summer by a mortgage meltdown of borrowers with risky credit.

 

"Once the economy starts to slow, you're going to see a large increase of these people in bankruptcy court," said Robert Manning, a professor at Rochester Institute of Technology who has written about college students and credit cards.

 

A 2005 change to bankruptcy law puts private student loans on par with child support and alimony payments: Lenders can garnish wages if someone doesn't pay.

 

Cuomo's probe revealed what he calls an "appalling pattern of favoritism" for student lenders that provided kickbacks, revenue-sharing plans and trips to college administrators in exchange for recommended lender status. Other critics allege widespread corrupt arrangements propelled a student loan boom.

 

Lenders deny such charges, arguing that industry growth resulted from surging education costs and that higher interest rates are justified for unsecured loans to borrowers with blemished or insufficient credit records.

 

"Lenders take 100 percent of the repayment risk on flexible private-education loans made to people with limited credit histories, on which they will not get repaid for several years," Barry Goulding, a Sallie Mae official, told Congress last spring.

 

New regulations could dry up access to education financing, he and other industry executives argue. Some experts are skeptical, predicting waves of student loan delinquencies and defaults on what is outstanding.

 

"Should private student loans suffer the same sort of failure as (subprime) mortgages, as students graduate or drop out and find themselves unable to pay, we will do serious damage not only to the lives of many students but also to the economic and social fabric of our country that depends on college graduates for its strength," said Luke Swarthout at the U.S. Public Interest Research Group.

 

 

The Plot Thickens: Students at 921 Colleges Choose the Same Lender

 

Jul 10, 2007

 

Scandal after scandal rocked the $85 billion student loan industry over the last year. The latest news: students at over 900 colleges chose the very same student loan lender. Coincidence? The Department of Education says no and has finally decided to take action.

 

The Department of Education recently announced that stern warnings were issued to 921 colleges and universities that failed to pass the Department's red flag test.

 

Jeff Baker, a liaison at the Department's federal student aid office, reported that the 921 campuses that received the strict warning were singled out because 80% or more of the student body at these campuses chose to work with just the one lender.

 

'That was a little flag to us that perhaps, just perhaps, the institution isn't quite being open enough to their students and parents about who they could borrow from,' said Baker at an annual meeting of the National Association of Student Financial Aid Administrators.

 

The findings that raised the red flag came from research completed last month in the wake of scandals involving all-too-convenient relationships between lenders and various colleges and universities.

 

Allegations have been erupting all over the country since the beginning of the year. Numerous administrators are being charged with receiving kickbacks and other lucrative perks because they steered students into working with a specific lender.

 

John Hopkins University, charged with violating New York student loan practices, recently agreed to donate more than $1 million to absolve itself in an investigation.

 

So far, there is no hard evidence as to whether or not students are paying higher interest rates because of this questionable behavior, but it's likely that reports will surface soon.

 

The Department of Education did not name the 921 colleges and universities that received the letter, but did note that the warning was meant to serve as a reminder that such practices are illegal and to encourage schools to look into their individual practices.

 

Any institution that violates the established student loan policies could be subject to substantial fines and barred from participation in the FFELP (Federal Family Education Loan Program). The Education Department said that it plans to continue monitoring the situation and will be examining data on a regular basis to check for suspicious trends.

 

This move was the most aggressive action that has been taken so far, but critics of the Department say the involvement is long overdue and not nearly enough to curb what has become a very serious problem.

 

 

Bankruptcy Protection For Students?

 

In 2005 congress changed the law to exclude student loans (private or public) from bankruptcy protection, meaning that it is almost impossible to discharge your student loan by filing for bankruptcy.

 

Now, in light of the recent student lending scandal, congress is taking another look at that law, and legislation has been introduced that would extend some measure of protection to students who borrowed from private or non-profit lenders.

 

Senator Dick Durbin made what appears to have been the first response to these hearings. He has introduced S. 1561. Under Senator Durbin's legislation, only student loans "made, insured, or guaranteed" by a governmental unit would be nondischargeable in bankruptcy (absent a finding of undue hardship). The legislation would allow loans from private or nonprofit lenders to be dischargeable in bankruptcy. The discharge of loans from nonprofit student loan lenders would be a change from the pre-2005 law and was prompted, as I understand it, from reports that for-profit private lenders were sometimes working through nonprofit organizations. Also, as I read the legislation, it would make loans from state, but not private, universities and colleges nondischargeable.

 

Good news for some of our readers who have had a lot of trouble with private loans. There are people literally living off the grid, hiding from student lenders because they can't make enough money to make their payments. It's scary!

 

 

Student Debts, Stunted Lives

 

Margo Alpert is on the 30-year plan. Every month between $500 and $600 is automatically deducted from her salary to pay off college loans. By the time the 29-year-old Chicago public-interest lawyer is in her mid-50s and thinking seriously about retirement, she will finally be free of college debt."

 

The newspaper also found Carrie Gevirtz, a 28-year-old social worker with a degree from the University of Chicago, a $55,000 school debt and an annual salary of $33,000. She is quoted as saying, "I can't afford my lifestyle. I'm not in a position to buy a place. I can't buy a condo and don't know when I would, unless my income changed dramatically.... I was not prepared for this.... It really freaked me out." To make ends meet after deducting her $250 monthly payment on her student loan, Gevirtz has a second job at a health club and does baby-sitting.

 

Starting July 1 the interest on student loans taken out by students will rise to just less than 7 percent. Loans taken out by parents for students will shoot up to 8.5 percent.

 

Private Loans Deepen a Crisis in Student Debt

 

June 10, 2007

 

WASHINGTON — As the first in her immigrant family to attend college, Lucia DiPoi said she had few clues about financing her college education. So when financial aid and low-interest government loans did not stretch far enough, Ms. DiPoi applied for $49,000 in private loans, too. “How bad could it be?” she recalls thinking.

 

When Ms. DiPoi graduated from Tufts University in Boston, she found out. With interest, her private loans had reached $65,000 and she owed an additional $19,000 in federal loans. Her monthly tab is $900, with interest rates topping 13 percent on the private loans.

 

Ms. DiPoi, now 24, quickly gave up her dream to work in an overseas refugee camp. The pay, she said, “would have been enough for me but not for Sallie Mae,” her lender.

 

The regulations that the federal Education Department proposed this month to crack down on payments by lenders to universities and their officials were designed to end conflicts of interest that could point students to particular lenders.

 

But they do nothing to address a problem that many education officials say may have greater consequences — more students relying on private loans, which are so unregulated that Attorney General Andrew M. Cuomo of New York recently called them the Wild West of lending.

 

As college tuition has soared past the stagnant limits on federal aid, private loans have become the fastest-growing sector of the student finance market, more than tripling over five years to $17.3 billion in the 2005-06 school year, according to the College Board.

 

Unlike federal loans, whose interest rates are capped by law — now at 6.8 percent — these loans carry variable rates that can reach 20 percent, like credit cards. Mr. Cuomo and Congress are now investigating how lenders set those rates.

 

And while federal loans come with safeguards against students’ overextending themselves, private loans have no such limits. Students are piling up debts as high as $100,000.

 

Banks and lenders face negligible risk from allowing students to take out large sums. In the federal overhaul of the bankruptcy law in 2005, lenders won a provision that makes it virtually impossible to discharge private student loans in bankruptcy. Previously such provisions had only applied to federal loans, as a way to protect the taxpayer against defaulting by students.

 

While federal loans also allow borrowers myriad chances to reduce or defer payments for hardship, private loans typically do not. And many private loan agreements make it impossible for students to reduce the principal by paying extra each month unless they are paying off the entire loan. Officials say they are troubled by the amount of debt that loan companies and colleges are encouraging students to take on.

 

“It’s a huge problem,” said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers. “When a student signs the paper for these loans, they are basically signing an indenture,” Mr. Nassirian said. “We’re indebting these kids for life.”

 

Dozens of students interviewed said that when they signed for their loans they were unclear on what interest rate they were getting and that financial aid counselors discussing repayment failed to include interest that students were compounding while in college. The lenders say they are providing a valuable service, helping students who might otherwise not be able to afford college. Tom Joyce, a spokesman for Sallie Mae, the nation’s largest student lender, said the company’s average interest rate on private student loans was just over 10 percent and that the typical borrower was a young person with little or no credit history and no collateral.

 

“What would the credit card interest rate be for that borrower — 24, 25 percent?” Mr. Joyce asked. “Our goal is to make it possible for students to graduate.”

 

But various members of Congress are now looking at ways to tighten oversight of private student loans.

 

The large growth in private loans — once confined primarily to graduate students — largely comes from steep increases in tuition, which have outpaced inflation and federal aid, and an increasing reluctance among parents to take on more debt.

 

For the last 15 years, the limits on the most common federal loans have stagnated at $17,125 for four years. They will increase slightly starting next month. In addition, loan companies have also come to realize that such loans can be hugely profitable.

 

Although the federal Education Department has no jurisdiction over private student loans, Education Secretary Margaret Spellings recently pledged to convene the agencies that do, including the Securities and Exchange Commission, the Federal Trade Commission and the Federal Deposit Insurance Corporation.

 

Research by the U.S. Public Interest Research Group and others show that some students are taking private loans before exhausting their eligibility for low-interest, fixed-rate federal loans.

 

Janea Morgan, 25, a 2006 graduate of California College San Diego, said that college officials had her fill out the federal financial aid form but never tapped federal loans. Instead, she said, they steered her to a private loan with KeyBank, at an interest rate that could rise four times a year, with no cap.

 

Now, she is carrying $46,000 in private loans at 9.22 percent interest, which she fears may rise beyond her ability to pay. Ms. Morgan said that when she asked college officials why they bypassed federal loans, “They said it would take too long.”

 

Barbara Thomas, vice president and chief operating officer at California College San Diego, said that she could not discuss Ms. Morgan’s situation because of privacy laws, but that generally students sometimes took too long to fill out the federal financial aid application properly. “It’s a time thing that kids have to work with,” Ms. Thomas said.

 

Sometimes marketing is at work. Last September, the United States Student Association complained to the Federal Trade Commission that a major private lending program, Loan to Learn, made “false and deceptive claims” in a brochure called “Demystifying Financial Aid.”

 

According to the complaint, the brochure stated inaccurately that “most government loans are need-based,” suggested that federal loans could not be used for education-related costs like computers and books, and that there were “strict deadlines” on applying for federal loans. In fact, students can get federal loans to pay for educational expenses, even retroactively.

 

George C. Pappas, a spokesman for Loan to Learn, dismissed the complaint as “absolutely ridiculous.” Nevertheless, EduCap, the parent company, has removed the passages from the guide. The F.T.C. declined to comment on Loan to Learn.

 

Students with private loans can be caught by surprise at how adjustable interest rates allow debt to swell.

 

Sean Craig Hicks, 35, attended the Westwood College of Aviation Technology, now known as Redstone College, in Broomfield, Colo., from 1997-2000 in the hope of becoming an airplane mechanic. He said a financial aid officer gave him an application for a $6,000 private loan through Wells Fargo to help pay outstanding expenses just before graduation. On the school’s hall walls, he said, were fliers for Wells Fargo loans. “You trust those people when they tell you this is the one to go with,” Mr. Hicks said.

 

Mr. Hicks said his loan documents had promised that if he paid the minimum due each month, he would pay off the loan by 2010. Instead, after six years of payments, most of them on time, he owes $100 more than when he took out the loan.

 

A spokeswoman for Wells Fargo, Mary Berg, confirmed that Mr. Hicks held a student loan, but called the dealings with him a private matter. Officials at Redstone College did not respond to requests for comment.

 

Many students out of dozens interviewed said it was not particularly clear what interest rate they had signed up for.

 

Take Attila Valyi, a Motorola employee in Plantation, Fla. Eager to jump-start his education, he turned to American InterContinental University, a for-profit institution offering a bachelor’s degree in 13 months. But discovering how much the diploma would cost was an endeavor worthy of a dissertation.

 

While the $28,000 tuition was no secret, Mr. Valyi said that at the urging of university officials, he had signed an application for a loan that doubled as a pledge to pay the money back. It did not indicate an interest rate. He took out two more loans before getting his bachelor’s degree, realizing only when it was too late, he said, that he carried loans at three different interest rates that could rise from month to month, the largest for $10,745 at 18 percent.

 

When Mr. Valyi, 30, contacted the lender, Sallie Mae, to refinance, he said he was told he could not do so until he graduated. “You’re locked in at 18 percent,” he said he was told.

 

Martha Holler, a spokeswoman for Sallie Mae, said Mr. Valyi and other borrowers of those years would have been told, during the application process and in an approval letter, the interest rate as a percentage above the prime rate. And they were free to cancel, up to 30 days after the money went to the school.

 

Lynne Baker, a spokeswoman for the Career Education Corporation, which owns American InterContinental and scores of other for-profit colleges, said that the corporation did not track individual student interest rates and that whether to pay such rates was the students’ decision.

 

NY times Article

 

Comments (0)

You don't have permission to comment on this page.