Date: 7/20/2010
Dear Reader:
Private student loans are not a thing of the past, but they’re sure a diminished presence. Of course, FFELP is gone—for now—and private loans are available from fewer lenders, who now require higher credit scores to qualify.
Colleges have largely chosen to shy away from preferred lender lists for private loan sources, so what are families to do when vetting lenders and their programs?
Students and parents gravitate toward the lenders with the biggest marketing budgets—the ones they’ve heard of—like Wells Fargo, Citibank, and Sallie Mae. Rates from these lenders “start as low as 2.88%” but they don’t add, “…and as high as 11.25%”.
Given the credit-score-sensitive interest rate spread above, consumers (students and parents) should scrutinize private student loans as carefully as they do colleges.
Enter Tim Ranzetta, a guest speaker at Summer Seminar this year. Tim founded Student Lending Analytics, an independent research firm whose goal is to be an objective source of information for families. Tim is an entrepreneur with successful start-ups on his business resume. He found the whole student loan landscape hard to fathom, and more than a little treacherous for typical families without a resident finance MBA on retainer.
SLA is not affiliated with any bank, lender, or other financial service firm serving the student lending marketplace. Tim uses his finance background and industry knowledge to make private student lending more transparent for families.
Have you ever heard of Addison Avenue Federal Credit Union? I hadn’t, until I checked Tim’s website recently. He’s given them a four-star rating as a loan source—while Sallie Mae and Citibank merit two stars and one and a half star, respectively.
What’s he rating? Well, for one thing, Addison is crystal clear about what the interest rate will be for various FICO scores, while the others do not provide any information about that. For another, Addison does not charge anything if a loan goes into forbearance. Publically, Sallie Mae says “Forbearance Fee will be disclosed to the borrower prior to the fee being assessed.” Student Lending Analytics did some digging and found that Sallie charges $50 for each loan and that students must re-apply every 3 months for up to 24 months, and a fee is incurred each time.
Oh, and Tim also develops preferred lender lists for colleges.
The story of how Tim started SLA, and his motivation for doing so, are interesting to hear. In this 10-minute video, Jamie Wolfe, chief finance officer of Northstar, interviews Tim about how he decided to zoom in on student lending, how he finds that insider information, and what else he’s got cooking (Tim has his sites set on college and university transparency as well.).
I hope you’ll find this informative, as well as entertaining.
Warm regards,
Jim
