Some of you have had questions on selecting a Stafford Loan lender. This is really tricky. The bad part of this whole thing is that schools can no longer recommend a lender to students. The same applies to private alternative loans. What I can tell you is that schools are allowed to publish a Preferred Lender List, which can only be accomplished by issuing a Request For Information (RFI). Lenders submit the RFI with pertinent information about their interest rate rebates, fee charges, and customer serice. Remember, interest rates, loan limits and repayment options are the same for all Stafford Loans.
The school uses the lender RFI to determine the best Stafford Loan company for students. However, this isn't always the case since lenders have the option of completing an RFI. Not all lenders reply for consideration of being a Preferred Lender.
With Direct Lending, the loan is distributed by the school through the Department of Education. You do not have a choice in a lender. So selecting a lender only applies to schools that use the Federal Family Education Loan Program (FFELP).
Here are some things to consider when selecting a FFELP lender:
- Look at the stability of the lender. Is it an institution that's volatile and will sell your loan to another company as soon as the loan is disbursed? If so, it could be confusing for you to keep track of who actually owns your loan.
- What are the fees? All lenders must charge an origination fee and default fee, which reduces the actual money you receive. In the last few years, most lenders paid this on your behalf, and you received 100% of the amount you borrowed. However, with the lender crisis in the last year, many are back to charging the fees, of up to 4%, back to the student. Ask what upfront fees are charged.
- Check out the customer service. Believe it or not, this is important. Do you have the option of talking to a real person? Check out the company's overall status. Have they laid off workers? If so, this usually means a shift in job duties and you may be dealing with customer support staff who aren't fully trained. Our office has found this to be an issue even when we call on behalf of the student.
- What happens if you can't make your loan payments? Is the lender generally supportive of offering a forbearance if you run into tough times and can't make your payment? A forbearance means payments are temporarily suspended, but you continue to accrue interest.
- Reduction in the interest rate can save you money. Ask the lender if they offer a reduction in interest rate if you set up automated payments, or you make consistent payments for a specified amount of time.
- Be sure to look at how the loan will be disbursed. Is the lender set up to electronically process disbursements to your school? With the change in no longer assigning a lender to students, we are now gettng loan applications that actually require a paper application, which really slow down the whole application process.
Again, your school may offer a Preferred Lender list, but you're not required to choose from this list. I sound like a broken record when it comes to student loans, but do some research. Hopefully the items I listed will help you make your decision.