Selecting a Lender
There are a number of factors you should assess and compare when selecting a lender. Although many of the basic terms and conditions for loans are the same, particularly across federal lenders, 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 .5% origination fee, beginning on July 1, 2009. Some guarantors waive the 1% federal default fee. If this fee is waived, you would receive 99.5% of your Stafford loan proceeds.
The Federal PLUS loans include 1% federal default fee and a 3% origination fee. Some guarantors waive the 1% federal default fee. If this fee is waived, you would receive 97% of your PLUS loan proceeds to pay expenses.
Back-end Benefits
These incentives may include an actual reduction in the interest rate or a percent interest rebate on the principal amount. 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 24 or more 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?
