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How to Choose a Loan and Evaluate a Student Loan Lender
We offer these suggestions to help students and families consider their choices and review the options available to them. We do not offer financial or professional advice on these matters, and individual circumstances vary greatly. If appropriate you should consult a professional of your choice to assist you in making these decisions.
Choose an Education Loan
There are several different types of education loans for which a student borrower may be eligible. Among the list are the following:
- Perkins
- Stafford
- PLUS
- GRADPLUS
- Alternative/Private Educational Loans
Each type of loan has different costs and terms.
Stafford loans and Perkins loans (if eligible, please see below) are among the least expensive educational loans and often have the most flexible repayment options. Private education loans are among the most expensive, with the highest fees and interest rates, although they are generally less expensive than credit card debt or non-secured private consumer loans. We recommend that families explore their eligibility for other types of loans only after they exhaust their Stafford loan limits.
Families should evaluate the various terms and features associated with each loan, and make selections based on their personal best interests. Among the terms and features to consider are the following:
- Repayment terms
- Interest rates
- Loan benefits
- Deferred payments
- Rate reductions
- Principal reductions
- Auto debit rate reductions
Parents may consider borrowing from the Federal PLUS loan program since it is generally a less expensive loan as compared with a private educational loan. However, parents should be clear that PLUS loans obligate the parent, not the student. Private loans, while more expensive, obligate the student for repayment, but in most cases, parents may be required to cosign a private student loan, thereby obligating them as well.
FEDERAL PERKINS LOANS: Federal Perkins Loans are offered to both undergraduate and graduate students based on demonstrated need. The loans currently carry a 5% interest rate, do not have an origination or default fee, and carry a 10-year repayment period. Prior to receiving the proceeds from the loans, students must complete a Master Promissory Note (MPN). Interest charges do not accumulate while students are enrolled in school and repayment begins nine months after the student graduates, when enrollment ceases, or if the student drops below half-time enrollment status.
Federal Family Education Loan Program (FFELP) (Stafford, PLUS, and GRAD PLUS) loans are provided by private lenders, such as banks, credit unions and savings & loan associations and are guaranteed against default by the federal government. Students may select any lender that participates in the FFELP program. Please see choosing a lender below.
FEDERAL STAFFORD LOANS:
Subsidized
Federal Subsidized Stafford Loans are need-based loans made available to students by participating commercial lenders and other lending institutions. The maximum amount students can borrow each year is based upon grade levels in school. For all loans disbursed after July 1 2007, the following annual limits apply:
- Freshmen $3,500
- Sophomores $4,500
- Juniors/Seniors $5,500
- Graduate/Professional programs $8,500
As of July 1, 2006, Subsidized Stafford Loans have a fixed interest rate of 6.8 percent. All students must complete Master Promissory Notes (MPN). Repayment begins six months after students graduate, when enrollment ceases, or if the student drops below half-time enrollment status.
Unsubsidized
Unsubsidized Stafford Loans are not based strictly on demonstrated need. Independent undergraduates, graduates, and professional students can borrow additional money through this program. Amounts that may be borrowed annually vary by class level. Currently as of July 1, 2006, loans contain a fixed interest rate of 6.8 percent. Unpaid interest accrues from the start and compounds, increasing the total amount to be repaid. Repayment begins at disbursement unless you tell your lender to capitalize your loan. Students may be eligible to receive a combination of Unsubsidized and Subsidized Stafford Loans. For additional more specific information regarding Stafford Loan eligibility and loan aggregates, please go to Student Aid on the Web, or Mapping Your Future.
FEDERAL PARENT LOANS FOR UNDERGRADUATE STUDENTS (PLUS):
PLUS loans provide a fixed rate of 8.5% and are made available to the parents of dependent undergraduate students to assist with educational expenses. The maximum amounts that parents may borrow are equal to Hofstra`s cost of attendance minus other aid. Loans require credit checks by the lending institution, and require completion of a Master Promissory Note (MPN) by the parents. Repayment of both principal and interest commences from the start, while students are attending school.
GRADUATE STUDENTS (GRADPLUS)
GRADPLUS loans are 8.5% fixed rate loans made available to Graduate students to assist with educational expenses. The maximum amounts that students may borrow are equal to Hofstra`s cost of attendance minus other aid their students are receiving. These loans require credit checks by the lending institution, and require completion of a Master Promissory Note (MPN) by the student. Repayment of both principal and interest commences from the start, while students are attending school.
ALTERNATIVE LOANS
The University recognizes that after all other financing options have been exhausted, students may also need to use alternative sources of financing to help offset the costs of attendance and living. Various lenders offer alternative loan programs to students. Students should be educated consumers and carefully compare the programs and terms offered. Alternative Loans are not subsidized by the federal government. Students must be creditworthy, or have a creditworthy co-signer. Interest rates for these loans are largely based on the credit scores of the borrower and/or co-signer. For additional information, please see the information below on choosing a lender.
Evaluating and Selecting a Student Loan Lender
Remember Each Lender is Different
We strongly encourage you to carefully evaluate the terms offered by lenders, even if you are taking out a FFELP loan where the interest rates are set by the government. It is essential that you educate yourself about the relative terms and benefits offered by lenders to ensure the best possible terms for your personal circumstances. We encourage you to compare the following lender services when deciding which lender to select:
- " Customer service is an extremely important piece of criteria that should be considered when selecting a lender. Top notch service should include:
- 24 hr Toll free 1-800 number where you can reach on associate quickly
- The lender should not sell your loans at repayment or at least provide efficient notification of the sale so you know where to send your installments.
- (preventing late payments and not knowing who to send your payment to)
- Self -servicing lenders or maintaining the same third party servicer for the life of the loan repayment
- Online account access and Email access to account representatives
- Timeliness of problem resolution and knowledgeable staff
- Low number of borrower complaints
- Combined billing for federal and private loans
- Provide an Electronic on-line loan application process and instant approval
- Offer flexible repayment options to meet your affordability criteria
- Loan Interest rates and special benefits - These are very similar for the federal loan programs, but many lenders offer discounts at origination and at repayment. Some examples include:
- Auto Debit interest rate reduction at repayment
- Interest rate reductions with a certain number of on-time payments
- Principal reductions at origination and/or at repayment
- Late payment forgiveness
- Lender pays the origination fee
- Lender or guarantee agency pays the federal default fee
- Ability to regain benefits if you lose them i.e. Due to late payment
- Capitalize interest on your loan less frequently (quarterly or annually)
Questions to ask when you're choosing a lender:
- What are the incentives you offer at origination, repayment and during repayment?
- Is there a waiting period for the incentives? How do I have earned them and am I automatically enrolled and notified of them?
- What happens if I miss a payment?
- What happens if I request a deferment?
- How many of the borrowers actually receive the incentive?
- Is the lender knowledgeable and experienced and can they answer questions specific to you?
- What is the credibility? Are there many borrower complaints about the lender?
- How accessible is the lender online and hours of phone call center?
- How is their long-term commitment? Does the lender have a history of selling loans? Do they service their own loans or have life-of-loan servicing.
Many students and parents have asked for information about student loans and student lenders. Hofstra University does not recommend or endorse particular lenders, and we encourage you to review all of the available information very carefully. Some helpful web sites are: