Monthly Archives: July 2008

Private student loan types

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There are two types of Private loans. They are :

 

  1. school-channel

School-channel loans offer borrowers lower interest rates but generally take longer to process. School-channel loans are ‘certified’ by the school, which means the school signs off on the borrowing amount, and the funds for school-channel loans are disbursed directly to the school.

 

  1. direct-to-consumer.

Direct-to-consumer private loans are not certified by the school; schools don’t interact with a direct-to-consumer private loan at all. The student simply supplies enrollment verification to the lender, and the loan proceeds are disbursed directly to the student.

While direct-to-consumer loans generally carry higher interest rates than school-channel loans, they do allow families to get access to funds very quickly — in some cases, in a matter of days.

Some argue that this convenience is offset by the risk of student over-borrowing and/or use of funds for inappropriate purposes, since there is no third-party certification that the amount of the loan is appropriate for the education finance needs of the student in question.

Direct-to-consumer private loans are the fastest growing segment of education finance and under legislative scrutiny due to the lack of school certification.

Private student loans

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Planning to take private student loans? Here is some information for you.

The private student loans are not guaranteed by a government agency and are made to students by banks or finance companies.

Advocates of private student loans suggest that they combine the best elements of the different government loans into one. They generally offer higher loan limits than federal student loans, ensuring the student is not left with a budget gap.

But unlike federal parent loans, they generally offer a grace period with no payments due until after graduation. This grace period ranges as high as 12 months after graduation, though most private lenders offer six months

US Federal student loans to parents

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Usually these are PLUS loans (formerly standing for "Parent Loan for Undergraduate Students"). Unlike loans made to students, parents can borrow much more — usually enough to cover any gap in the cost of education. However, there is no grace period: Payments start immediately.

Parents should be aware that THEY are responsible for repayment on these loans, not the student. This is not a ‘cosigner’ loan with the student having equal accountability. The parents have signed the master promissory note to pay and, if they do not do so, it is their credit rating that suffers.

Also, parents are advised to consider "year 4" payments, rather than "year 1" payments. What sounds like a "manageable" debt load of $200 a month in freshman year can mushroom to a much more daunting $800 a month by the time four years have been funded through loans. The combination of immediate repayment and the ability to borrow substantial sums can be expensive.

Under new legislation, graduate students are eligible to receive PLUS loans in their own names. These Graduate PLUS loans have the same interest rates and terms of Parent PLUS loans.

Parents should also be aware that legislation raised the interest rate on these loans significantly — to 8.5% on July 1, 2006. This information is base on wikipedia.