College Loans by whom ? For whom ?

As a current college student with student loans, this article in today’s New York Times (front page, left column in the paper edition) bout the private lenders’ lobbying efforts caught my eye and deserves a post.

Quotes like the following from Sallie Mae spokesman that assert the private companies are the better option (than a government coordinated program) for students to receive college loans are what triggered me to write this. “The private sector program has better prices, better product selection, better service, and better technology” (Glatner 2007).

Are you kidding me ?! At least for me, flat out, the Direct Loan and Perkins Program (both run indirectly by the US Dept. of Education) is the better option for me than my private loans. I have both the Perkins and Direct Loans, with those rates (If I remember correctly) are at 6.75%. Citibank (which was one of the companies suggested by my small liberal arts college), has me at a 9.25% rate for one of my loans (for freshman year) and for this (sophomore) year, I looked around and found a better deal, MI-Loan, with 8.00% a year. All of these rates are fixed, if I remember correctly.

Yes, a better deal is not solely determined by the interest rates, but there’s a couple other things that I remember about the govt v. private loans. With the government loans, any interest that would have compounded while I was in school is gone, f I make my first 12[?] payments on time. For the Citibank program, there is an incentive for making your first [x amount] of payments on time, I remember it wasn’t as good as the govt loan one. Plus, if I were go into the Peace Corps or Teach for America [probably wouldn’t], some of the govt loans are repaid.

If this article is indicative of anything, the lobbyists’ ability to influence the student loan structure and inaction from lawmakers and colleges leaves me to wonder: ‘what am I, a college student, is supposed to do ?!’

If you think there’s other options for me and/or better private loan programs out there, please call me ignorant and point them out to me. I would love any advice and I thank you in advance for it.

Signing off, to do homework and enjoy spring weather.

(bibliography below)

Jonathan D. Glater and Karen W. Arenson, “Lenders Sought Edge Against U.S. in Student Loans,” The New York Times, East Coast Edition, A1, A21, April 15, 2007, (accessed April 15, 2007).

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  • CollegeLoanSearch  On April 15, 2007 at 4:24 pm

    Also keep in mind that the Direct Loan program costs more. The Dems suggest that it’s cheaper for the taxpayer, and we wouldn’t argue that. However, the additional cost is bourne by the Financial Aid office….and that overhead/cost is going to be picked up as an increase in tuition/fees. So the Direct Loan program is far more expensive for college attendees, not the taxpaying public as a whole. see for an addition discussion on the default rates on Direct Loans vs FFEL (hint: Direct Loans have a higher default rate).

  • FFELPisCheaper  On April 15, 2007 at 7:32 pm

    The reason your private loan is cheaper because of that very reason. There are two types of loans for which you have to fund a college education, a Stafford/Perkins loan & Alternative (Private) loans. Stafford loans are either funded by the government via the Direct Lending or by lenders through the FFELP program. A school is either a FFELP school or Direct Lending school. One or the other, not both. FFELP loans vs Direct Lending loans will result in a cheaper loan for the student & a cheaper burden to the taxpayer. These loans are guaranteed by the government & the rates are set by the gov’t. Both rates for Direct Lending & FFELP are the same. Where the students that take out FFELP loans benefit is the borrower benefits such as 3% Principal Reductions after so many ontime payments, Interest Rate Reductions for ontime payments or ACH payments. On top of that, most lenders have paid the origination fees imposed by the government. When I took out my direct lending loan, I had to pay for those.

    So when Sallie Mae says that the private industry is cheaper than the government, they are talking about the FFELP loans, not the private loans.

    For further explanation of the different loans, go to wikipedia & look it up.

  • Dawn Clarkson  On May 11, 2007 at 5:39 am

    If you are considering taking out a consolidation loan but don’t know where to start, you should read this blog

  • DIRECTisBETTER  On July 17, 2007 at 11:51 am

    There are too many promises being made by the FFEL lenders. Sure they can say that they will reduce your payments after 12 on time payments. But usually after that 11th payment – they sell the loan to another lender.
    Direct Loans do not sell their loans. This is very important, and something that people who are now in school – or in repayment – will remember when their loan is sold. If you are a FFEL loan borrower, I bet your loan has already been sold without your knowledge or approval.

    I work in a financial aid office, and we are a Direct Lending school. We do not increase tuition ONE PENNY for our costs of using Direct Loans. It is set up so easily at my school. Much easier than the FFELs any day of the week. FFEL loans have to be sent to the lender, certified, and the funds sent to us, checked before making available to student and then check cut and sent or ACH. MUCH more costs and people required to work on FFEL loans. We just front the funds for Direct Loans and they repay us. If a student is a transfer student who has been on the FFEL program, we will keep them on the FFEL program.
    Direct Loans are phasing out the loan origination fee.

    Direct Loan consolidation offers much more too.

    Google to see who owns one of the largest collection agencies in America. It’s Sallie Mae (who uses banks such as Chase, Bank of America, etc). They want you to default on their loans. Sallie Mae is the one lender I have heard the WORST feedback about.

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