5. More choices. Private lenders are offering rates that rise and fall with LIBOR and rates that remain fixed at anywhere from 6 percent to 12 percent, depending on the borrower's credit score. Borrowers can choose among traditional lenders, neighborhood credit unions, or new peer-to-peer lending websites. At People Capital's new anonymous student loan auction site, lenders only see financial and academic information, without knowing the name of the borrower. The bidder with the lowest interest rate wins the right to lend the student money.
6. Clearer information. A 2009 government crackdown led to new laws requiring lenders to give specific rates, terms, and costs before borrowers commit to a private student loan. Lenders must also now warn applicants of the maximum monthly payments they could face.
7. More consumer protection. Year-old reforms to the federal Truth in Lending Act require private lenders to give students and parents 30 days after a private loan is approved to decide whether they want to take the money. Lenders cannot change the terms in those 30 days. Borrowers also now have three days after they accept a private educational loan to change their minds.
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