Selecting a Lender

Although many of the basic terms and conditions for federal loans are the same across all participating lenders, there are a number of factors you should assess and compare when selecting a lender. When choosing a lender you should pay particular attention to the following items below; they will help in your decision making.

Customer Service

Since you are about to enter into what may be a long-term relationship with a lender, it is important that you select a lender with a demonstrated record of excellent customer service.

Borrower Benefits

The term “borrower benefits” is commonly applied to financial incentives provided by individual lenders to reduce the price of your loans over time. There are two categories of these benefits: front end and back end. These benefits may vary from lender to lender and we hope that the following information will prove useful in your making an informed decision.

Front End Benefits

Mandatory front-end fees for the Federal Stafford program include a 1% federal default fee and a 1% origination fee, as of July 1, 2008. This means that you would receive 98% of your Stafford loan proceeds.

There are lenders who will waive these fees on Federal Stafford loans, allowing you to receive 100% of the loan proceeds to pay for educational expenses.

The Graduate Federal PLUS loans include a 1% federal default fee and a 3% origination fee. Thus, you would receive 96% of your PLUS loan proceeds to pay expenses.

However, on Graduate Federal PLUS loans some lenders waive the 1% federal default fee, allowing you 97% of the loan proceeds for your educational expenses.

Back End Benefits

These incentives may include an actual reduction in the interest rate or a rebate applied to the principal loan balance. When making your choice, it is important to compare the back end benefits and ask the following questions:

  • What is the actual (calculated) benefit and how much money will you save?
  • Is it easy to qualify for the savings?
  • Does the benefit begin immediately without restrictions or does it go into effect after a certain number of consecutive on-time payments? Are you required to sign up for ACH (automatic withdrawal or “auto debit” from your savings or checking account) in order to qualify for the benefit?
  • How do you lose the benefit (thereby losing the savings) and once lost, can you regain the benefit?

Note: If you choose to consolidate your loans upon repayment, then the borrower benefits would not apply.