Until recently, banks and other private lenders have made it hard for anyone to shop for college loans, in some cases because they didn’t want to compete by cutting profit margins. But several web entrepreneurs and state agencies have developed new tools to help students and parents find private loans that, in June of 2010, charged as little as 1.78 percent in interest.
Before shopping for private loans, students and parents should first apply for federal student aid, including low-cost government loans, lenders say. (First step: fill out a Free Application for Federal Student Aid.) Unlike private loans, federal student loans offer fixed interest rates as low as 4.5 percent, easy repayment terms, and the possibility of forgiveness for public service.
[Read about cheaper, easier federal student loans. ]
Students who need more than the federal government’s student loan maximums should consider cutting their costs or switching to a cheaper college instead of borrowing more, many financial aid officers suggest. Students who owe more than the $31,000 total maximum the government lends to undergraduates through the Stafford program can find it difficult—and occasionally impossible—to make their monthly private student loan payments. And they have little hope of relief, since bankruptcy courts rarely erase educational debts.
[Read about a proposal to give relief to those with private student loans.]
Also, lenders typically only approve applications of those who can prove they are likely to repay. So noncitizens or young adults without high credit scores will be denied unless they can find a citizen with a good credit score to agree to make payments the student skips.
Here are three kinds of web tools that can help find private college loans:
|Private Student Loan Web Shopping Sites||Description|
|Bank of North Dakota||Offers students from, or attending college in, North Dakota private loans at variable rates that in June 2010 were just 1.78 percent. For students from, or attending college in Minnesota, Montana, South Dakota, Wisconsin or Wyoming, the initial variable rate was 3.02 percent. Fixed rate loans are also available.|
|Credit Union Student Loans||Allows shoppers to search for variable rate loans from several dozen credit unions. As of June 2010, some were offering loans at about 3.2 percent to borrowers with excellent credit.|
|Education Finance Council||Lists nonprofit student lending agencies. The Connecticut Higher Education Supplemental Loan Authority, for example, offers state students fixed-rate loans at about 7.2 percent.|
|Overture Marketplace||This is the only site that provides specific interest rates and term bids from several traditional lenders, credit unions and nonprofits for those who enter detailed personal financial information.|
|Simple Tuition*||Gives general interest rate ranges and terms offered by most large traditional lenders and some nonprofits. Ranges are customized to a student’s school and amount requested.|
|Student Lending Analytics' Private Loan Rating||Gives the general loan terms of most of the big lenders. This is the only site to also display ratings of each loan based on consumer reviews, true costs, and borrower benefits.|
|Student Choice||Offers rates and terms of variable college loans offered by more than 100 credit unions.|
|Prosper||Allows people to post their pictures and stories, and start auctions for short term loans among investors.|
|People Capital||Allows people to set up anonymous auctions for private loans. Lenders, which include foundations, colleges, companies and wealthy individuals, see only financial and educational details, no names or pictures. The bidder with the lowest rate wins.|
|How much will your payments be?||Gives estimated monthly payment|
|How much will you earn after graduation?||Gives high, average and low earning estimates based on your location, grades, major, college and high school.|
*Full disclosure: U.S.News & World Report has a business relationship with one of the websites: SimpleTuition.
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