<p>The choice of lenders is on this site: <a href=“http://www.mylenderlist.com/morehouse[/url]”>http://www.mylenderlist.com/morehouse</a> </p>
<p>Don’t know where to start in picking one. Please advise. Thanks</p>
<p>Looks like Wachovia’s the better deal–do you need the free checking?</p>
<p>the lenders are more competitive today than just 2 years ago. If you don’t know which of these to chose, then you need to understand the terms. A good place is the counseling of the loan. </p>
<p>We as a nation are in a mess because the borrowers of subprime loans didn’t understand the future ramifications. The lenders also didn’t want to tell their clients of future consequences, and the regulators were blind to the economics. </p>
<p>YOU in your education MUST understand how money works and the differences of the different programs. Your future career will be peanuts if you fail. Sad part is that it only takes a little bit of effort. No mathematics too.</p>
<p>I don’t need free checking–I have it with Bank Of America. I can run the figures and post the results when I can. But can someone back-check after me?</p>
<p>Can I asked this then: How is the loan rate calculated? Is is the I=Prt? or something else? My knowedge base is limited on this subject matter.</p>
<p>Wow. No wonder congress wants to reduce the subsidy to these lenders. With all these rebates and reductions, there must be a lot of profit in these loans.</p>
<p>At any rate, I’d be curious regarding what a real financial analysis shows. If the OP runs the numbers and posts the assumptions, I’d be glad to check.</p>
<p>Well, i have read a interesting article on how Sallie Mae make a ton of profits of the loans lendded out though the fee that they can charge the federal government. I am trying to figure out how to run the figures. I guess I have used the max amount of Stanford loans that have to be taken out first to have a control comparison.</p>
<p>Oiram,</p>
<p>You need to know how to do rate of return or present value calculations.</p>
<p>Essentially, you receive a certain sum from the lender. You make a series of payments that are impacted by their reduction schedules. A simple excel formula will give you a rate of return based on that series of cash flows.</p>
<p>I’ll try to model it later today if I have a chance.</p>
<p>Don’t sweat it if what I said above does not make sense. Either you have a background in finance, in which case the exercise is pretty trivial, or you don’t, in which case the comparisons are baffling. The lenders know most folks are in the latter category, so they come up with different schemes to make it hard to compare.</p>
<p>In general, the borrower will pay less over time with the package that offers the largest interest rate reduction and has any other benefits that kick in at the earliest point in the loan. </p>
<p>Benefits that kick in down the line – such as reduction of interest rates after 36 months of on-time payments, or waive of payments near the end of the loan – may never be realized by the borrower for a variety of reasons. For example, students move around a lot in their first few years after college, and its easy to miss a payment because the loan statement doesn’t catch up with the student. Students often opt to consolidate loans down the line – which means they are refinancing and going with a different set of options. If the borrower elects to accelerate payments – making extra payments to pay the loan off early – they may never get to the point where some of the benefits kick in. </p>
<p>I would like to say that the math is the same whether the loan is big or small – that is, you don’t have to run any particular set of figures to see the difference, as everything can be expressed as a percentage. A 2% interest rate reduction on a $20,000 loan represents twice as much money as on a $10,000 loan, but it is still 2%. So I suggest using calculators and just running a model starting with round figures for easy comparison. </p>
<p>I think newmassdad is talking about another consideration in terms of rate of return or present value: how much is $1000 in a savings account worth compared to $1000 spent on loan payments? What is the value of having the $1000 to spend now compared to the value of going without it in order to avoid borrowing? How do loan interest rates compare to the interest that can be earned on savings & investments? </p>
<p>I think those are good questions for parents to ask when weighing the choice between borrowing or liquidating investments – however, I don’t think that those are necessary concerns for most students, simply because it represents a hypothetical that doesn’t exist. As a parent, I really do face that choice: do I jeopardize my long-term financial security by spending all my savings on my kids college – or do I hang on to my nest egg and spread out the payments for college over 10 years rather than 4 by borrowing? </p>
<p>But most students don’t have that choice – they simply don’t have the money unless they borrow it. So the bottom line is relatively simple. Absent unusual circumstances – I think the answer is to go for the loan that will cost the least over time, and in comparing similar packages, go for the one where benefits are most certain and are given at the earliest point in the loan.</p>
<p>Calmom, with stepwise reductions in interest rate or stepwise forgiveness in principal, there is no quick and dirty way to compare. </p>
<p>What I’m referring to is the true apr of a loan, which is the only honest way to compare. To give an example, if you borrowed $10,000 at 6.5% for 10 years, and paid 2 points, your apr is 6.95%. To put it another way, 10K at 6.5% and 9.8K at 6.95% have the same payment.</p>
<p>Now in the cases here, I suspect principal forgiveness at 36 months has an impact, because not much has been amortized at that point, but I’ll need to run some numbers to be sure.</p>