Private loan » Origination Fee

Reducing Private Student Loans

admin — Thu, 24 Dec 2009 22:00:27 +0000

When looking for debt consolidation student loans, you must consider all or as many of the moving parts that make up the cost of the money borrowed. Just like any loans, there are three (3) general areas where the lender can charge that will raise your costs. These areas are the fixed costs, the interest rates, and penalties. Additionally, there is a fourth area, promotions, that you must heed in order to reduce the total cost of consolidation for private student loans.

FIXED COSTS

You’ve heard of these as application fees and/or origination fees. These are generally explained as covering the paper work to process your loan. Application fees are usually fixed so that a consolidation for private student loans totaling $25,000 will have the same fee as a $100,000 loan.

On the other hand, origination fees are a percentage of the total loan, typically 1%-3%. In the mortgage industry, the origination fee, also called “points”, depends on the interest rate. Lower interest rate means higher origination fees and vice-versa. There’s a term in the mortgage industry that you can “buy down the interest rate by paying higher points”. This is one way to lower the monthly payments. Additionally, the origination fee is a major source of the broker’s commission. The student loan industry seems to have the same mechanics. So it is best to understand how they work.

Because of the current competitive nature of the student loan services, many lenders are discounting the fixed costs. Some are even slashing them off completely. So if you’re in the market for consolidation of private student loans, look first to the program with no origination and no application fees. Make the lenders compete!

INTEREST RATES

Another area of cost is the interest rate. Furthermore, this is where the lender gets most of its income for the life of the loan. Again, because of the competitiveness of the student loan consolidation services, many lenders give incentives that will lower the interest rate.

The most common way to reduce a private student loan interest rate is through an automatic payment plan. In this plan, the lender will deduct the monthly payments directly from your checking account with your authorization. Since it’s done electronically, it will be timely. And that leads to a second opportunity to reduce the interest rate — consecutive “no late” payments for a stated time period. For example, some lenders will lower your interest rate if you make 48 consecutive monthly payments without being late. Over the life of the loan, that could be significant. You must learn these incentives and take advantage of them.

Also, not necessarily a rate reduction plan, but could nevertheless reduce the total cost of the student loan is the option of a fixed rate over that of a variable rate. A fixed rate private student loan consolidation program gives you a predictable monthly cost. A variable rate adjusts according to typical financial factors, such as the federal interest rates and economical conditions. In the early years of the new millenia, interest rates have been its lowest just hovering around 4-7%. However, from the 70’s to most of the 80’s, interest rates were in double digits. Opting for a student loan consolidation with fixed rate can avoid the cyclical high’s of the interest rate roller coaster. But you must catch it at the lowest student loan consolidation rate at that time.

PENALTIES

Just like many mortgages written in the 90’s and older, some student loans have pre-payment penalties. These are money that you owe if you were to pay the loan ahead of schedule. They were industry standard so that the lender does not lose money in the transaction. The penalty is typically a percentage of the remaining balance. Imagine if you paid a 10-year loan in 6 years. There would be a percentage of the 4 remaining years to pay over and above what you already paid.

However, as the student loan consolidation services get more competitive, many lenders have been giving up prepayment penalties to attract credit worthy borrowers. Hence, when speaking to a student loan consolidation counselor, you must ask if you’ll be assessed a pre-payment penalty because there are many programs out there that do not have such penalty.

PROMOTIONS

Lenders are competing for your business. Hence, they give incentives such as a student loan consolidation credit that could lower the total cost of your loan. Typically, these are rebates where the lender will write you a check once you finished paying off the loan. Another popular method is a “no last month payment” where you don’t owe the last month of your bill. Since these are promotions, they are normally given in a limited window of time. But sometimes, it helps to ask your counselor if the lender he’s representing is offering any promotion.

SUMMARY

When times are tough economically, you need all what you can do to relieve the stresses. One way is to take control of your finances, including your debts. For student loans, the opportunities are there to save money. But you must know what they are. When looking to consolidate your private student loans, be aware of the costs. If you have to compromise, understand the advantage you’re gaining and the benefit you’ll be losing. And most of all shop for the right lender and ask the right questions.

By: RL Aguirre

Alternative Student Loans – Private Student Loans

admin — Sun, 29 Nov 2009 01:07:56 +0000

Many students are awarded all types of financial aid and student loans that cover tuition. Unfortunately, college costs can far exceed the price of your class. Private student loans, or alternative loans, can help to bridge the gap between your financial aid, scholarships and living expenses.

Private student loans can be used for just about anything that you need while you are in school. You can use them for a laptop, car, food, and gasoline, whatever you need while you are in school. Many private student loans will allow you to defer payments on the loan until after graduation. This can be a big help when it comes to getting yourself through school.

You will need to do some comparison shopping before you apply for a private student loan. Compare rates, terms, perks and fees before you fill out an application. Some loans may require a hefty origination fee. Some may not offer deferred payments. Some will offer specials circumstance leeway with payments for future times of need. Educate yourself on the types of benefits you can receive from different types of private student loans before you apply.

Some students may get the idea to apply for as many loans as possible instead of doing the legwork and figuring out which private student loan is best before applying. This can be detrimental to your cause. This is because each application you put in reflects as a credit inquiry on your credit report, and can affect your credit rating. Your credit rating will determine whether or not you qualify for those better loans. So, do not jump the gun and just start filling out random applications, shop around and compare lenders before you commit.

Once you have your loan, stick to making payments on time, every time to protect your credit. Paying a loan on time can really help your credit score. Paying more than the minimum is also helpful. If you ever anticipate not being able to make a payment, call your lender right away. Keep in touch with them and make a concerted effort to resolve the situation. This could mean the difference in having a bad hit on your credit or keeping it blemish free. Do not ever blow off a loan payment. Every late payment goes on your credit. It can also cause you to lose good interest rates or other benefits.

Some private student loan lenders offer special reduced rates to customers that make on time payments for an extended period of time. One late payment could count you out of this special deal and could even cause your rate to increase.

Be wise and educate yourself about private student loans before you sign on the dotted line. Make sure that you know exactly how the payment plan works and work towards the goals of better rates and special deals. Keep your payments on time and your credit in check.

By: Evelyn A. Saunders

GRAD PLUS and Private Student Loans FAQ

admin — Thu, 12 Nov 2009 17:55:03 +0000

1. Comparison of Grad PLUS or graduate student loans with Private Loans

Interest Rates – While GradPLUS or graduate student loans offer a fixed interest rate for the term of the loan, private loans tend to have a variable rate based on your credit score and credit history and may increase or decrease according to market conditions.

Repayment – Graduate student loans are based on a 10-year repayment while private loans offer variable repayment terms mostly in the range of 12-30 years.

Consolidation – Graduate student loans may be consolidated with other federal education loans such as Stafford or Direct Plus while private loans are more of personal loans with no consolidation features. The consolidation loan program in GradPLUS allows for better debt management and repayment options.

Credit Scores – Although both require a credit check, graduate student loans have a lighter sentence and are open to people with bad credit. Private loans are stricter in their credit check and may even look at your FICO scores, debt to income ratio, income employment status and other credit factors. You may also need a creditworthy co-signer to approve the loan.

Deferment and Forbearance – GradPLUS loans are federal loans offering same payment deferment and forbearance options as the federal Stafford loan. Forbearance covers factors such as unemployment and economic hardships up to three years and deferment of payments while in-school is unlimited provided you maintain at least part time enrolment. Many private loans only offer one year of forbearance.

2. What is the amount that can be borrowed using GradPLUS?

The loan amount at Gradaute student loans cannot exceed your total cost of attendance unless other financial aid is received.

3. Is FAFSA required to apply for GradPLUS loans?

Yes, FAFSA must be filed before applying for GradPLUS.

4. Are there fees on GradPLUS loans?

There is a 3% origination fee and a 1% guarantee fee charged on the loan amount and both have to be paid up front.

5. What is adverse credit?

Adverse Credit is when:

The applicant has been unable to pay his debts for more than 90 days.

The applicant has had a debt discharged under bankruptcy in the five years prior to the date of the credit report.

The applicant has been the subject of a default determination on any debt, foreclosure, tax lien, repossession, wage garnishment or a write-off of a Title IV debt during the five year period prior to the date of the credit report.

6. Who is an endorser?

An endorser is a credit-worthy person who co-signs your graduate student loan.

7. What are the Repayment Options in GradPLUS and when does one have to start paying up?
Level Payment Plan: equal monthly payments over the term of the loan.

Graduated Repayment Plan: two years of interest-only payments, followed by increased payments covering interest and principle for the remainder of the loan.

Income Sensitive Plan: payments adjusted to the borrower’s income.

Extended Repayment Plan: payments can be extended up to a 25 year term.

The first payment is usually required within 60 days after the final loan is disbursed. However, many lenders do offer a deferred payment option if you are still in school attending at least half time. There is currently no provision for a grace period on the GradPLUS loan, which means that students would begin repayment immediately upon graduation or if they drop below half-time status.

8. What is COA – Cost of Attendance?

The cost of attendance is usually a yearly figure summarizing the various costs of attending the school. These include tuition, fees, on-campus room and board, allowances for books, supplies, transportation etc. It also includes miscellaneous personal expenses like allowances on purchase of a computer as well as disability expenses.

9. When does interest begin to accrue and when is it capitalized?

Interest starts to accrue as soon as the first disbursement is made. Interest is capitalized when the accrued interest is added to the loan principal.

10. Graduate Student Loan V/s Private Loan – what is right for me?

The Private loan should be taken if:

You do not mind an increase in the interest rate which is usually fixed with a GradPLUS loan.
You have a good credit score.

There is little possibility for you to use the deferment or forbearance options.
The loan is short term.

The GradPLUS loan should be taken if:

Fixed Rate Interest security

Costs are lower notwithstanding your credit score

Greater protection with deferment and forbearance

By: William Brister

Student Loans

admin — Thu, 12 Nov 2009 02:27:43 +0000

The government of America believes that each and every person has a right to education and hence student loans have been made available. Student loans are financial grants that can be used by the student to pursue or complete their education. There are many types of student loans that can be used by undergrads, graduates etc. Let us now look at some of the loans and their types.

Federal loans

These student loans are the more recommended option and have terms that you will find more favorable to you. The rate of interest will be lower than private loans.

The loans include the federal Stafford loan which is the most popular type of student loan. This is a fixed rate and low interest loan. It is available for undergraduate students and is widely used across America. It has an interest rate of 6.8% and other fees like the origination fee is also applicable. It has loads of flexible repayment options. Consolidation is also possible in this kind of loan. The federal Perkins loan is a low interest loan for students who need a large amount of money. This loan has an interest rate of 5%. The federal parent plus loan is for the parents of students who are dependent. The parent can borrow up to the full cost of education minus any other aid that the student has received. This loan has an interest rate of 8.5% and there are many repayment options also available. A credit check however is required in this type of a loan. The federal graduate plus loan is for students who wish to attend graduate school. The student must however have exhausted the eligibility for the Stafford loan before he can be eligible for this one. Interest rate is once again an 8.5%, however you can work with organizations like sally Mae to get it reduced to 6.75%.

Private Loans

If you as a student have exhausted your eligibility to get any more federal loans, then you can use private loans. These are on the expensive side and do not be surprised if you find the interest rates to be higher than federal loans.

The signature student loan is the most popular ones after the Stafford loan. You must be in good academic standing to be eligible for this one. There is no limit on what you can borrow, so you can borrow your entire cost of school as well from this one. If you opt for Sallie Mae, they can help you get lower interest rates than conventional private loan programs. The next in line is the student answer loan that lets a student borrow any amount from $4000 to $40000 a year for any expense related to college.

Repayment and Problems

Despite all the convenience that the student loans offer, many students still fall into trouble while trying to repay their loans. There are several reasons why this happens. A student usually has a time frame in mind in which he would land a job and start to repay the loan. But many a times he is unable to land a job within this time frame. The normal time frame allotted by most lenders is 6 months. So if the student cannot land a job in 6 months time, then he starts to default payment. A student can apply for forbearance or suspension of payments in such times. He can also choose to reduce the cost of living for a few years until he is stable enough to start paying the loan in time.

By: Daniel Wesley