Choosing a Stafford Loan Lender
Be sure you really need a loan.
The Office of Student Financial Aid typically awards enough financial aid to cover the entire cost of attendance. Financial aid award packages almost always consist of some type of loan. Students who prefer not to borrow money or who want to keep their borrowing to a minimum, often work instead. Ultimately, it's up to you to decide what is right for you. Consider all sources of income and borrow only what you think you'll need.
Understand the charges.
Guarantee Fee: This administrative fee is mandatory and is typically 1% of the loan amount and is paid to the guarantor for guaranteeing your loan. This fee is deducted from the loan by the lender before it is disbursed to the school. The majority of student borrowers at UT Tyler have their guarantee fee paid by the guaranteeing agency.
Origination Fee: This fee is 2% of the loan amount and is deducted from the loan by the lender before it is disbursed to the school. Some lenders no longer charge an origination fee at all.
Unsubsidized Interest: Interest on Unsubsidized Stafford Loan begins to accrue as soon as the loan is disbursed to the school. The current interest rate is fixed at 6.8%. You have the option to pay this interest while you're in school. If you elect not to do so, the interest will accumulate and will be added to the principal.
Repayment Interest: Once your loans enter repayment status, your lender will calculate a repayment schedule over a 10-year term that will allow you to repay the total amount of loans you borrowed plus 6.8% interest.
Understand lender incentives.
Loan Fees: Some lenders no longer charge an origination fee at all. This won't save you any money while in repayment, but you'll receive more money up front.
Principal Reductions: Some lenders will refund a percentage of your outstanding student loan balance either at the start of repayment or at designated milestones of repayment, such as 36 months or 48 months.
Interest Rate Reductions for Repayment: Some lenders will reduce the 6.8% interest rate at the start of repayment or at designated milestones of repayment, such as 36 months or 48 months.
Interest Rate Reductions for using Automatic Payments: Some lenders will reduce the interest rate if you elect to repay your loan through pre-scheduled automatic bank debits. Although the reduction in interest rate varies, the reduction is typically 0.25%.
Forgiveness of Final Loan Payments: Some lenders will waive your final few payments and consider your loan paid in full. This benefit is not very common, and typically does not cover more than the last 6 months of payments.
Understand the fine print.
In most cases, the ability to cancel loan payments and/or reduce interest accrual or principal requires that you make your payments on time. Students may lose advertised benefits if they miss payments. If you consolidate your loans, you may lose benefits, or worse, be asked to pay back any benefits you received. Loan consolidation, however, does offer alternate repayment terms such as extended repayment, graduated repayment and income contingent repayment terms.
Consider more than just cost.
When making a large purchase, you don't automatically buy the least expensive item. You shop around until you find a good product for a reasonable price. Similarly, you should "shop" lenders until you find one who can disburse your loan funds to your school efficiently and accurately at a reasonable cost. Lenders should always be available and able to answer your loan-related questions and concerns. Remember, your loans have to be repaid, so you want to select a lender who's acccessible and easy to work with. Additionally, you may want to consider using a lender who will provide you with a greater range of services later, like checking accounts and future home or auto loans. The dropdown list on TG's Loans by Web consists of UT Tyler's top volume lenders. They are listed in no particular order, and students have the option of choosing a lender that is not on this list.
Do your research.
Lenders often advertise that they have the best loan product available. While this may be true, they may not be the right lender for you. To help you decide, use the following checklist:
- Dedicate some time to calling or e-mailing lenders.
- Ask them the following questions:
- Do you charge loan fees?
- What are your repayment benefits?
- What do I have to do to receive these benefits and how are the benefits lost?
- If I borrow $10,000 over my college career and I receive all these benefits, what will be the total dollar amount I will repay by the end of my 10-year repayment?
- If I borrow $10,000 over my college career and I receive NONE of these benefits, what will be the total dollar amount I will repay by the end of my 10-year repayment?
- Compare the cost of your loan, the service you received, and any other advantages to using each lender you contacted.
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