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.
- NEW REQUIREMENTS FOR
PRIVATE STUDENT LOANS
- CHOOSE AN
- EVALUATING AND SELECTING
A STUDENT LOAN LENDER
New Requirements for Private Student Loans
Self-Certification Instructions and COA
Beginning February 14, 2010, the Department of Education has enacted new legislation that requires private student loan lenders to provide basic information about loan terms and potential costs to prospective borrowers in addition to informing borrowers of lower cost federal options that should be exhausted prior to considering a private student loan. The purpose of these new requirements is to assist borrowers in making more informed choices about educational loans.
These requirements apply ONLY to new applications and DO NOT apply to loans that have already been disbursed. The information below will now be part of the private student loan application process:
- All lenders are required to provide three new loan disclosures for all private student loans:
- Application Disclosure
- Provides general information about the range of rates, fees and other terms that apply.
- Also includes information on federal loan options.
- Approval Disclosure
- Is presented when a lender is prepared to make a firm offer and contains your loan rates and estimated total costs.
- Disclosed loan terms must be accepted by either the applicant or cosigner within 30 calendar days of receipt of this disclosure.
- If the loan terms are not accepted within the timeframe, the loan approval will be canceled and the student will have to reapply.
- Final Disclosure
- Is presented to borrower after the loan has been accepted and 3 business days before the loan is disbursed (3 additional business days if mailed).
- Contains specific information regarding the loan terms, including the approved loan amount, approved interest rate and estimated repayment schedule. Also contains information on the right to rescind prior to the first disbursement date.
- Applicant/cosigner has 3 days to rescind the loan without penalty.
- Self-certification form:
- Students must submit a signed self-certification form to the lender BEFORE loan funds can be disbursed. We encourage you to use the form provided to you by your lender.
All three disclosure and self-certification form will be provided to you by your lender. You must follow up with your lender to ensure all necessary paperwork/information has been received. If you have any questions, please contact the Student Financial Services Office at 516-463-8000.
There are several different types of education loans for which a student borrower may be eligible. Among the list are the following:
- 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 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 DIRECT LOAN PROGRAM (Stafford, PLUS, and GRAD PLUS) Direct Loans are low-interest loans for students and parents to help pay for the cost of a student's education after high school. The lender is the U.S. Department of Education (the Department) rather than a bank or other financial institution.
With Direct Loans, you
- Borrow directly from the federal government and have a single contact-the Direct Loan Servicing Center—for everything related to the repayment of your loans, even if you receive Direct Loans at different schools.
- Have online access to your Direct Loan account information 24 hours a day, 7 days a week at Direct Loans on the Web at: www.dl.ed.gov .
- Can choose from several repayment plans that are designed to meet the needs of almost any borrower, and you can switch repayment plans if your needs change.
- Direct Subsidized Loans for undergraduates - 3.4% (additionally, a 1% fee of the loan amount will be deducted proportionately each time a disbursement is made.
- Direct Unsubsidized Loans for all students - 6.8%. (additionally, a 1% fee of the loan amount will be deducted proportionately each time a disbursement is made).
- Direct PLUS Loans – 7.9% (additionally, a fee of 4% of the loan amount will be deducted proportionately each time a PLUS loan disbursement is made).
FEDERAL STAFFORD LOANS:
Students with eligibility may borrow from the Stafford Program to help meet their educational expenses. Two types exist: subsidized and unsubsidized. Need as determined by the federal needs analysis is required to borrow a subsidized Stafford loan; to determine eligibility it is required that students file the Free Application for Federal Student Aid (FAFSA) each year. Students must meet all other federal aid eligibility criteria to borrow this loan. Important update regarding subsidized Stafford loans - effective for loan periods beginning on or after July 1, 2012, graduate and professional students will no longer receive the Federal Direct subsidized loan. As a result, graduate and professional students will be awarded Federal Direct unsubsidized loan. The annual limit, however, does not change.
Subsidized eligibility is always considered first because the interest is paid by the federal government during the periods of at least half-time attendance (6 credits for undergraduates).
The following are the base year annual limits that may be borrowed:
- Freshman (0-29 credits earned) $3,500
- Sophomore (30-59 credits earned) $4,500
- Juniors/Seniors (60+ credits earned) $5,500
Unsubsidized base year eligibility is limited to remaining amounts of the above limits not covered by calculated need. Students borrowing unsubsidized funds must make interest payments while enrolled, or interests may be capitalized until repayment begins. Repayment begins 6 months after the student ceases at half-time attendance (6 credits for undergraduates and law school students, 4.5 credits for graduates). Dependent undergraduate students may borrow an additional $2,000 on top of the annual limit. Undergraduate students meeting the federal definition of an independent student may borrow additional unsubsidized loan up to the following:
- Freshman (0-29 credits earned) $4,000*
- Sophomore (30-59 credits earned)$4,000*
- Juniors/Seniors (60+ credits earned) $5,000*
- Graduate students $12,000
* Dependent undergraduates may also borrow this amount if a parent is denied for a PLUS loan.
Stafford Loan Limits
Dependent Undergraduate students may borrow up to an aggregate limit of $31,000
Independent Undergraduate students may borrow up to $57,500
Graduate students may borrow up to $138,500
Repayment would begin six months after ceasing at least half-time attendance (6 credits for undergraduates and law school students, 4.5 credits for graduates). Students must accept the awards offered on their award letters for processing to begin.
FEDERAL DIRECT PARENT LOAN FOR UNDERGRADUATE STUDENTS (PLUS):
Parents of dependent undergraduate students can borrow a Direct PLUS Loan to help cover education expenses up to the cost of attendance minus all other financial assistance. Interest is charged during all periods. You must be the student's biological or adoptive parent or the student's stepparent, if the biological or adoptive parent has remarried at the time of application. Your child must be a dependent student who is enrolled at least half-time. In addition, parents and their dependent child must be U.S. citizens or eligible noncitizens, must not be in default on any federal education loans or owe an overpayment on a federal education grant, and must meet other general eligibility requirements for the Federal Student Aid programs.
Parent PLUS loan borrowers cannot have an adverse credit history (a credit check will be done). If you are found to have an adverse credit history, you may still borrow a PLUS Loan if you get an endorser who does not have an adverse credit history. An endorser is someone who agrees to repay the Direct PLUS Loan if you do not repay the loan. The endorser may not be the student on whose behalf a parent obtains a Direct PLUS Loan. In some cases, you may also be able to obtain a Direct PLUS Loan if you document to the Department of Education's satisfaction that there are extenuating circumstances related to your adverse credit history.
To borrow a PLUS Loan, you must complete a FAFSA, PLUS Application and master promissory note (MPN) at www.studentloans.gov.
FEDERAL DIRECT PLUS LOAN FOR GRADUATE STUDENTS
Graduate and professional degree students can borrow a Direct PLUS Loan to help cover education expenses up to the cost of attendance minus all other financial assistance. Interest is charged during all periods. You must be enrolled at least half-time; must be U.S. citizens or eligible noncitizens; must not be in default on any federal education loans or owe an overpayment on a federal education grant; and must meet other general eligibility requirements for the Federal Student Aid programs.
PLUS loan borrowers cannot have an adverse credit history (a credit check will be done). If you are found to have an adverse credit history, you may still borrow a PLUS Loan if you get an endorser who does not have an adverse credit history. An endorser is someone who agrees to repay the Direct PLUS Loan if you do not repay the loan. In some cases, you may also be able to obtain a Direct PLUS Loan if you document to the Department of Education's satisfaction that there are extenuating circumstances related to your adverse credit history.
To borrow a PLUS Loan, you must complete a FAFSA, PLUS Application and master promissory note (MPN) at www.studentloans.gov
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 at least 18 years old and creditworthy, or have a creditworthy co-signer to apply. Interest rates for these loans are largely based on the credit scores of the borrower and/or co-signer. Some private lenders may require minimum monthly payments while you are in school. They may also consider federal education loan borrowing in determining the amount of annual as well as aggregate limits you may borrow. For a list of alternative student loan lenders, please visit http://www.finaid.org/loans/privateloan.phtml.
Hofstra University does not prefer, recommend, promote, endorse, or suggest any of these lenders. You are not required to borrow from any of the lenders appearing on these lists and there is no penalty for selecting a different lender, if you prefer.
Remember Each Lender is Different
We strongly encourage you to carefully evaluate the terms offered by lenders. 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 an 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.
- 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
- Rapid 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 - 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: