Find and Compare Student Loans

Loan Amount:
Loan is for:
Year in School:
Loan Types:

Click to Compare Student Loans

Student Loan Insights

Find posts on the following topics:

Recent Posts

Archived Posts

Share this Post

Borrower Benefits on the Way Out?

Friday, June 13, 2008

Student lenders use borrower benefits to differentiate themselves from competitors (they can be confusing, though!). How much do you save when you get a 0.25% interest rate reduction for auto-debiting your payments? What is it worth to get a 2% interest reduction after making your first 48 payments on time?* Well, one effect of the ongoing credit crisis is that some borrower benefits may be on the way out.

Because of the credit crunch, the Department of Education has stepped in as a lender-of-last-resort to buy loans from lenders, and they probably will accept only two types of borrower benefits. As a result, any lender that wants to resell their loan to the department can only offer the following benefits:**

  1. Up-front benefits like origination fee reductions that occur when the loan is disbursed
  2. Interest rate reductions for automatic payments of 0.25%

Hopefully, this means that education loans will be a little easier to understand in the future. If you need help understanding loans, including borrower benefits, you may want to try out our student loan marketplace.

Notes:
* The answer, as always, is that it depends. For a 10 year, $10,000 loan with 10% interest, the 0.25% would save you around $280 over the course of the loan, while the 2% reduction after 48 on-time payments would save you around $640.

** Reselling loans like this on the secondary market to private organizations has been common practice for years. The government is stepping in to make sure that this market keeps working so lenders can keep offering you loans.

Permanent Link

Comments

Post a Comment