Finding and Comparing Student Loans
Tuesday, April 8, 2008
For many of you, taking out student loans is a necessary part of going to college. You're probably already receiving letters and e-mails from student lenders, highlighting the "benefits" of their student loan program. It's no easy task sorting through all your options.
Which Student Loan is Best
Navigating your way through the maze of private student loan options can be difficult, even if you're a math genius. One lender is offering you money back when you graduate. Another lender lowers your interest rate if you set up bill payment by auto-debiting your bank account. How do you decide which student loan is best for you?
Student Loan Marketplace
It just so happens that CollegeToolkit.com now has a tool to help you make apples-to-apples comparisons of Stafford, PLUS, and Private loans. It can be difficult to compare loans that may have different interest rates, origination fees, and borrower benefits. Student loans have lots of moving parts and figuring out which option is better for you can be a dizzying task.
Our Student Loan Marketplace makes it easy for you to find a whole bunch of loan options in one place and then compare them side-by-side. We even help you make sense of all the ins and outs by providing a single number called a Loan Cost Index that you can use to make comparisons about which loan may be the best for you.
What is the Loan Cost Index?
Our Loan Cost Index gives you a quick sense of how costly a loan is (in today's dollars). Think of it as kind of like a price tag for a student loan, the lower the number the better. We want to help you become a bargain hunter when it comes to student loans.
Let's walk you through a quick example. You select a student loan with a Loan Cost Index of 125. That means that for every $100 in student loans that you take out, you will be repaying $125 (in today's dollars). Our Loan Cost Index takes into account the interest rate of the loan, any borrower benefits for the student loan, and any upfront fees as well as other factors like in-school and grace periods.
The Loan Marketplace also lets you customize the results. If you want to exclude all borrower benefits, you can. If you plan on making interest payments for your private loan while in school, that's possible, too.
The Loan Marketplace is intended to help you make good decisions when it comes to picking the best student loan for you and your parents.
A Word of Advice about Student Loans
One thing we hope you keep in mind before you start your search for private loans, make sure you take advantage of more affordable funding options first. That includes, searching for scholarships and taking advantage of federal loan programs like Stafford loans. Once you've done that, you're ready to turn your attention to private loans.
Labels: comparing loans, financial aid, PLUS loans, private loans, Stafford loans, student loans
Private Student Loans a Larger Share of Education Finance Pie
Friday, November 16, 2007
So, by now, you know all too well that college costs are growing at a pretty rapid clip... by over 6% at both public and private 4-year colleges this year. So how have college-bound students and their parents been dealing with this increase in tuition. It turns out that the most common method has been private loans. Unfortunately, taking out a private student loan is the most costly way to finance a college education (except for credit cards, but we hope none of you are putting your tuition bill on your credit card).
Over the last 10 years, federal aid programs for undergraduates have grown by an average of 5.6% a year, according to the College Board. Not too bad... the federal government seems to have been chipping in some extra dough for students to go to college over the last decade. However, over that same period, private loans used to finance a college education have grown at a rate of more than 25% a year, according to the College Board.
We don't want to harp on the negatives too much, but some of the most generous federal programs have actually taken major hits the past 2 years. Pell grants and Perkins Loans, which are targeted at the lowest-income students, have actually been declining since 2005. The most recent student loan legislation will help reverse some of these trends, though, by providing significant increases in Pell grant funding over the next 5 years.
Private student loan debt is still going to be a reality for most college-bound students and their parents (unless you attend one of the handful of schools moving toward no-loan aid packages).
How to Minimize Private Loan Debt
1. Recognize that not all loans are created equal
You want to make sure you take advantage of all the federal and state loan programs before you venture into the world of private student loans. These government-sponsored programs almost always offer better interest rates and more favorable terms than private lenders. For Perkins and subsidized Stafford loans, the government covers the interest payments while you're in school, which can make a big difference.
Learn more about the effects of interest and capitalization on your monthly loan payments using our Loan Capitalization Calculator.
2. Exhaust other financing options
Make sure that you take advantage of all the other financing opportunities out there. Don't forget to do a scholarship search to uncover relevant awards. You might also want to consider a part-time job while you're in school to help reduce your private student loan burden.
3. Create a realistic budget and stick to it
We know that you want to have fun while you're in school, but make sure your spending isn't getting out of hand. While a private lender will let you take out a student loan to help cover tuition and additional college-related expenses, remember that you're going to have to pay this money back down the road... with interest. You should consider ways that you can lower your expenses. For example, living on campus may be an option worth considering since you will likely only pay 9 months of rent (vs. committing to a 12-month lease for an off-campus apartment).
4. Be an educated consumer
Don't just go with the private lender that sends you the best brochure. Take the time to see what options are available to you. We offer a free tool to help you compare student loans. Some lenders will tell you about all the great borrower benefits that they have. Take a step back, read the fine print, and ask questions. Sure, a private lender may offer an interest rate reduction after 36 on-time payments, but find out what percentage of borrowers actually make that many on-time payments. What happens if you miss a payment or two? What are the origination and application fees? What happens if you need a deferment?
While we hope you are able to finance your education without private loans, your education is an investment in your future and it may be necessary to take out private student loans as part of this investment. Keep in mind that private student loans are not free money. Make sure you are responsible and do your homework.
Labels: borrower benefits, financial aid, student loans
Amherst Joins Princeton and Davidson on List of No Loan Colleges
Saturday, October 27, 2007
Graduating college debt-free... that sounds pretty incredible, doesn't it? No student loan debt seems too good to be true. Well, Amherst joined Princeton and Davidson this summer as the only colleges whose financial aid packages do not include any student loan component... that's right. Any student can graduate Amherst, Davidson, or Princeton without a penny in student loans. These three colleges do not put any limitation on income levels that qualify for their programs.
At these three colleges, your financial aid package will be made up entirely of work-study and grant aid. The way these programs basically work is this... You complete the financial aid forms and receive an assessment of your EFC (Expected Family Contribution). The difference between your EFC and the Cost of Attendance is your financial need. These colleges are basically promising that the financial aid package used to cover your financial need will not include any student loans. You and your parents will still be responsible for covering the EFC portion and may choose to take out student loans to cover some of your expected family contribution. That's up to you, but the Amherst and Princeton are doing what they can to make it feasible for you to graduate debt-free.
The programs at Amherst, Davidson, and Princeton are the most generous of a new wave of financial aid initiatives aimed at eliminating or minimizing student loan debt. Several colleges and universitites, (including Harvard, Brown, Columbia, Penn, and Emory) eliminate student loans for low-income students. Some state schools (such as Michigan State, Indiana, and UNC-Chapel Hill) offer similar programs for low-income students from within their respective states.
If you want to see a fairly comprehensive list of U.S. colleges and universities who have created programs to help students graduate debt-free, take a look at the Project on Student Debt's website.
Labels: Amherst, award, Davidson, debt, EFC, financial aid, financial need, Princeton, student loans
Decoding Financial Aid: Making Sense of All the Financial Aid Jargon
Friday, October 12, 2007
If you've started down the path of figuring out how to pay for college, you've probably been bombarded with words like EFC, COA, Unmet Need, and more. Is the assortment of financial aid acronyms and terms making your head spin? Well, hopefully we can help shed some light on all the alphabet soup of financial aid lingo and show you how all these financial aid terms fits together.
First, let's start off with the least enjoyable aspect of the college process... paying the bill. The COA, or Cost of Attendance, represents the total amount it will cost you to attend college. This number is expressed as a yearly figure. The COA includes:
- Tuition and fees
- On-campus room and board or a housing and food allowance for off-campus students
- Allowances for books, supplies, transportation, and loan fees
In addition to the above, cost of attendance may include the following (if applicable):
- Dependent care (this may be for students who have children)
- Costs related to a disability
- Miscellaneous expenses, including an allowance for the rental or purchase of a personal computer
- Reasonable costs for eligible study-abroad programs
Fortunately, most students and parents are not expected to pay the entire Cost of Attendance right away out of their own pockets. The federal government uses the FAFSA (Free Application for Federal Student Aid) and many schools use the CSS Profile to determine the Expected Family Contribution (or EFC). The EFC is basically an assessment of how much money you and your family can contribute toward paying for college. The FAFSA and CSS Profile take into account your income and assets and, if you are a dependent, the income and assets of your parent(s).
Your financial need is the difference between the COA and the EFC. It's the help that you need to fill the gap between what you can afford and what college actually costs.
| | Cost of Attendance |
| — | Expected Family Contribution |
 |
| | Financial Need |
This brings us to financial aid. Financial aid is typically focused on addressing your financial need, helping you and your family bridge this gap between the cost of going to college and your family's ability to pay.
Financial aid can be broken down into 3 main categories.
- Scholarships / Grants
Scholarships are the most attractive form of financial aid. Scholarships are essentially financial aid that does not have to be repaid. Scholarships are sometimes referred to as gift-based aid. - Loans
Loans are basically financial aid which must be repaid with interest over a period of time. Loans help you spread the cost of college over a more manageable time frame. Government sponsored loans, which include Perkins, Stafford, and PLUS loans, are typically the lowest cost loans for you and your parents. - Employment / Work Study
Work study is financial aid which requires you to work while attending school to contribute toward the cost of education. While, yes, it does requires you to work, work study or other employment may offer additional benefits to you over other forms of financial aid. You will likely develop improved time-management skills and build up good experience for your resume.
Now that leads us to the last term we're going to cover... Unmet Need. This is the leftover portion of your financial need after your financial aid package is factored in.
| | Financial Need |
| — | Financial Aid |
|
| | Unmet Need |
Some schools will try to cover all your financial need leaving you with no unmet need. A few colleges that make this effort include Harvard, Bucknell, and Franklin and Marshall. However, the financial realities of most colleges make it difficult for them to meet all your financial need. In this case, you might need to resort to private loans to cover your unmet need. We recommend that you consider all available options, including searching for scholarships and getting a part-time job, before you take on significant student loan debt. Remember, loans aren't free. You'll have to pay this money back (with interest) when you graduate.
We hope we've helped bring a little clarity to the jumble of terms you're running across as you look into ways to finance your college education.
Labels: COA, EFC, financial aid, financial need, scholarships, student loans, unmet need