(John Keegan for USN and WR)
Months later Scams, investigations and legislation that could revolutionize the student loan industry are sorting students and parents through the rubble – and confusing the lending process more than ever.
Some schools have had revenue-sharing agreements with lenders and some financial aid officers with the stocks of companies they were recommending, some schools have completely removed their “preferred lender” lists, less At least temporarily. Johns Hopkins now advises students to type “student loans” into a web search to find lenders. The University of Texas-Austin is temporarily listing the most local-volume lenders on its website; It hopes to provide students with an extensive list of lenders in the spring. Texas is also considering randomly rotating the order of the list to ensure fairness.
Other schools, including the University of Michigan and the University of Wisconsin-Madison, have long done without preferred-lender lists and are asserting their fairness. “If there was a tendency to advise people [on specific lenders], We are making sure that this is not happening, says Susan Fisher, director of financial aid at Wisconsin.
Less information. This means that students and parents are largely left to navigate the world of debt on their own. Robert Shirman, executive director of the project on student loans, says, “Parents and students can find that they are not getting as much information as they want because colleges are in the process of finding out what to say and what is not.” . ” .
Michelle Black, a corporate real estate analyst in Sugar Land, Texas, received little guidance after her daughter, Corrina Sanchez, was accepted by Sam Houston State University earlier this year. Because the school did not offer any specific suggestions, it turned to loan advertisements it received in the mail. She ended up choosing her lender based on the knowledge and helpfulness of the loan company customer service representative who answered her call.
Mario Fields, a freshman at Morehouse College in Atlanta, was also left to feel his way through the process. “I don’t know how to shop for it,” he says. “All [the financial aid office] I was told that I was on my own to take on lenders and I had to run the figures myself. “Fields tried to manually calculate the various exemptions given by lenders and selected one that offered 3 percent off the principal upfront of the loan.
Parents and students are increasingly moving towards online comparison websites, which allow users to search through lender benefits and rates. Kevin Walker, President and Cofounder for Profit SimpleTuition, A comparison site, says that according to internal research, the phrase “compare student loans” was searched on the Internet a few dozen times a day in the summer of 2006, while typing it into search engines several hundred times this year. has gone. one day. “Students and parents,” he says, “certainly heard the message that they should shop around.”
In response to the popularity of sites like theirs, many lenders are increasing their benefits, such as interest rate cuts and fees cuts for timely payments, to remain competitive. Two years ago, Walker says, lenders often offered interest rate reductions after 36 or 48 months of time payments. Today, they typically wait only 12 or 24 months before borrowers receive the shortfall. Signing up for automatic monthly payments used to decrease quarter-percent-point interest rate; The discount going now is close to half a point.
Lenders warn that increasing those benefits could be short-term. They say that the College Cost Reduction and Access Act, which is expected to hit President Bush’s desk soon, would cut lender subsidies to the extent that they would be forced to cut back on the benefits they would owe to borrowers. An August statement signed by about 50 lenders, including Salli Mai and JP Morgan Chase, said the law would make the college less expensive as it forced lenders to reduce discounts on interest rates and upfront fees Will do. A related bill, the Student Loan Sunshine Act, which is also pending, would ban gifts and other potential conflicts of interest.
struggle. Small lenders have also warned that profit cuts could force them to exit the market altogether. A college board lender announced in August that it would no longer accept loan applications after October 15 because the new law and code of conduct imposed too many restrictions on it. Because the college board is also a union for schools, it often hosts meetings for school officials. Such meetings, he said, may now conflict with the law as well as the new code of conduct of schools. In the past, the College Board has also provided schools with discounts on their products in exchange for placements on their preferred lender lists.
The law would use subsidy cuts to create its own benefits, including up to $ 16,000 of tuition assistance to students committed to becoming public school teachers and to some public-service jobs, such as law enforcement officers and Debt waiver prosecution for undergraduates. It would cap monthly federal debt payments at 15 percent of graduates’ discretionary income. The law would also increase the value of Pell grants, which are provided to low-income students, and cut interest rates on need-based federal loans.
Proponents say the benefits of the reforms far outweigh the borrower benefits offered by lenders, which typically go only to the minority of students. Rep. George Miller, a Democrat from California who sponsors the law and sponsors of the law, is “offering small incentives that most students don’t qualify for.”
The Fieldhouse Freshman benefits, if the President signs the law, especially if he decides to go into a public-service job. For now, he only knows how frustrating it was to navigate the world of debt on his own, before he made it to a new orientation.