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Student Loans - Beware Of The Fine Print

Last month was the time when high school seniors looked forward to receive fat postages from their colleges of choice. Today, it is a very different story, as they are posed with the question of how to eventually pay for all of this. Many will end up looking to take out a private student loan, along with all the fine print and financial fog that go with it.

Project on Student Debt indicates that the typical graduate leaves University or College with an average student loan debt of $21,900. And these loans can never be dispelled through filing an application for individual’s bankruptcy.

Among the several federal lending schemes that exist, the private-student-loan market constitutes less than one third of the total size; it is estimated at approx $20 billion. But, as a result of declining in the value of real estate and fall in stock market, there is an adverse effect on two alternatives of tuition funding sources (529 plans as well as home equity balances), it is expected that students will have to rely more on banks or any other private financial institutions this year.

Tim Ranzetta, who founded the company Student Lending Analytics, responsible for helping universities analyze lending programs, has described the market as a very opaque one, claiming that established lenders are seeking to win on company’s brand image rather than on price.

As part of a study with the objective of assessing the several offerings, Ranzetta has applied for education loans from several biggest and most well-established lending bodies. A key part of it all was to review the attached disclosures during the application and after the process, as well as to go through the promissory notes provided by the lenders.

He was surprised to find out that the interest rates range for fixed-rate loans varied from 7% to 12%, as well as the observation that the higher interest rates are usually charged by bigger lenders. Looking at the fine print within the promissory notes led him to discover that a few lenders Chase, SunTrust Bank and PNC Financial were given to raise the interest rates by 2 to 3 percentage points were a borrower to be late with satisfying a single due payment.

Besides that, it is also notable that there were differences in the way lenders applied excess payments by borrowers. The policy adopted by most of the lending bodies was to apply whatever extra amount received to any late fees at first go, then to the rate of interest accrued, then finally to the principal amount. Sallie Mae, for its several private loans, attributed excess capital only to its future payments; this made it even tougher for a borrower to repay principal sooner. A representative for Sallie Mae clarified that students making special requests would have their excess payments applied to their principal amount.