Private Loans and Choice in Financing Higher Education - College ...

Private Loans and Choice in Financing Higher EducationFigure 2.1: Lenders with the most private loan products, March 2003LenderNorthstarSouthwest Student Services CorporationKey BankStudent Loan XpressAccess GroupFleetNellie MaeBank OneNumber of Private Loan Products15 products14 products12 products12 products11 products11 products11 products10 productsNote: These lenders had the most private loan products when the March 2003 issue went into publication. Because of fluctuations in theprivate loan market, the list of lenders with the most products changes frequently. Note that the number of loan products does notnecessarily reflect the terms and conditions of the loan products.Source: Greentree Gazette, March 2003, p. 90application, lenders are challenged to determine whether a student is “credit-worthy,”having existing or past credit relationships that are favorable, or “credit-ready,” havingno unfavorable circumstances and maybe no credit history at all. Using an applicant’scredit rating, among other criteria, private lenders can exercise discretion whenapproving and setting the terms for individual loans.Federal student loans do not carry the uncertainty and risk associated with private loansbecause federal loans are guaranteed. The guarantee means that all students who areenrolled at least half time at participating colleges and universities, and who are eligibleto receive a loan as determined by their FAFSA, will be approved for a federal studentloan. In other words, students’ credit histories do not affect their ability to obtain federalloans. Because the federal guaranteed loan program is subsidized by the government,the interest rate on federal student loans is regulated and traditionally has favoredstudent borrowers. Additionally, Stafford loans are federally insured and carry dischargepolicies that release borrowers from all repayment obligations in certain circumstances,such as death, total and permanent disability, bankruptcy, and schools closing beforestudents can complete programs of study (ED 2003b).Services and rewards provided with private loans and federal student loans also vary.As the market continues to be saturated with an increasing number of private loanproducts, many lenders are distinguishing themselves through the rewards andservices they offer, such as direct deposit, on-time payments, co-signer release options,and interest-only payments. Lenders are also offering the following types ofservices: on-line and phone pre-application; on-line application tracking; on-line16