Today student loans are almost a given for college kids heading off to school. Few parents have the financial resources to pay all of the tuition for their children, and so most students fill out a FAFSA and apply for loans. This has not always been the case, however. Student loans are quite a modern invention.
The first recorded student loan program was developed by Harvard University in 1840. These early student loans were private loans that were not funded by the government. In 1935 the state of Indiana's General Assembly passed a law that provided student aid to students who had high test scores on their college entrance exams. This led to the formation of the Indiana State Financial Aid Association, or ISFAA, which was followed by the opening of the first Financial Aid office in Indiana University. Soon other colleges joined the ISFAA, and Indiana students had a new way to pay for school.
On October 4, 1957, Russia launched the first successful satellite into space. This had a huge impact on the history of financial aid in America, because the American government suddenly realized that they were in a race to put the first person in space. They realized that they only way to succeed in this race was to ensure that as many high school graduates as possible attended college, a feat which was out of the financial resources of many. With guidance from the ISFAA, the federal government created a working financial aid program.
After World War II, Congress passed the National Defense Education Act. This act introduced the Perkins Loan, a low-interest student loan that is provided to low-income students and has a 10-year repayment period. This was the first federally backed student loan, and more would soon follow. In 1963 the Health Education Assistance Act provided loans for students pursuing degrees in medical and health fields. This was followed by what is now known as the Federal Work-Study Program, a program that allows the federal government to pay the wages of working students.
By the end of 1965, Most of the student loan programs we use today, such as the Stafford Loan, Work-Study Program, and Perkins Loan, were in place. As the cost of education continued to rise, the government introduced the Parent's PLUS loan program in 1981, a program that allowed higher-income families to get assistance in paying for school. Today, these loan programs allow many students to pursue an education when they would otherwise be unable to, making them a valuable resource to our country as we strive to continue as a global leader.
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How Student Loans Came To Be
The Great Student Loan War
There is currently a great schism going on in the student loan industry - a war if you will. The question is how funds will be allocated and who will benefit.
For such a noble purpose, the student loan industry has certainly had an overtone of negativity. It is a highly profitable business to be in and competition has resulted in many scandals. The question now is whether the entire system needs to readjusted or not. In the opinion of President Obama, it does. The banks in the industry feel the opposite.
To understand the war underway on student loans, you first have to understand a key factor in how the government promotes their use. As with many financial tools, the government does not primarily give money directly to students. It does a bit, but mostly subsidies the lenders to make sure there is money on the market. This is a hugely profitable situation for lenders.
President Obama has noted that it ends up costing taxpayers far more to use this middleman process versus just making direct loans to students. Some estimates put the cost of using lenders at roughly $9 per $100 loaned versus a cost of less than $2 per $100 lent with direct loans. With this in mind, President Obama wants to end subsidies to lenders and reconfigure the scenario to a situation where loans are made directly to students.
As you can imagine, the banks and lenders are up in arms over this. They face the loss of their golden goose and are hiring lobbyist right and left to fight the measure. There is really no good reason for the subsidies, so the banks have fallen back on the claim that the new approach will cost jobs. Sallie Mae went so far as to pull back 2,000 jobs it had sent overseas to show how concerned it was. Of course, the company didn't really get into the fact it had sent those jobs overseas in the first place, but there you are!
The student loan plan of President Obama is expected to save between $90 and $200 billion dollars if he can get it passed. That money is earmarked to be converted into direct loans to students. In short, the question is whether we should give the money to the banks or to the students. I know where I come down on that one.
Private Student Loan Consolidation, Is There A Best One?
Private student loan consolidation cannot be generally mixed with federal student loans due to the low interest rate on the latter. However, there are several options open to refinance the private student loans by replacing them with another.
The main advantage of doing this is that instead of making several monthly payments, only a single payment is made every month that may be reduced although this will cost one in terms of higher interest amount paid because the single loan may be for a longer period of time.
There is a way to secure a lower interest rate. The private student loan is based on the credit score. If the credit score has improved by 50 to 100 points due to the fact that you have graduated and have a job, then you will be rewarded with a low interest rate.
Another way of getting a better deal when considering a private student loan consolidation is to talk to the holders of your debts. They may be willing to negotiate with you and cut down your interest rate so that they can keep you as their customer.
This type of loan also incurs the same interest that the home equity loan has. You can have a home equity loan at a fixed rate, thus locking in the low interest rate. However sometimes a variable rate looks attractive as long as you can watch it and lock it the moment it is on an upward trend.
Study carefully the terms of the agreement. Find out if the interest rate is variable or fixed. Ask also about fees and if there are prepayment penalties. Find out how much they are for each of the following lenders. Write them down so you can get the best deal from among the following list and whatever other companies willing to do the private student consolidation loan with you:
Key Education Consolidation Loan - $75,000 maximum for non-key debt, $7500 minimum, 10, 15, 30 year repayment term, no prepayment penalty and no fees
Citi Student Loans - $75,000 maximum, $7500 minimum, choose fixed or variable rate, up to 30 year term rate, rate reduction after 48 monthly on time payments, no prepayment penalty
Study carefully the terms of the agreement. Find out if the interest rate is variable or fixed. Ask also about fees and if there are prepayment penalties. Find out how much they are for each of the following lenders. Write them down so you can get the best deal from among the following list and whatever other companies willing to do the private student consolidation loan with you:
Key Education Consolidation Loan - $75,000 maximum for non-key debt, $7500 minimum, 10, 15, 30 year repayment term, no prepayment penalty and no fees
Citi Student Loans - $75,000 maximum, $7500 minimum, choose fixed or variable rate, up to 30 year term rate, rate reduction after 48 monthly on time payments, no prepayment penalty
Study carefully the terms of the agreement. Find out if the interest rate is variable or fixed. Ask also about fees and if there are prepayment penalties. Find out how much they are for each of the following lenders. Write them down so you can get the best deal from among the following list and whatever other companies willing to do the private student consolidation loan with you:
Key Education Consolidation Loan - $75,000 maximum for non-key debt, $7500 minimum, 10, 15, 30 year repayment term, no prepayment penalty and no fees
Citi Student Loans - $75,000 maximum, $7500 minimum, choose fixed or variable rate, up to 30 year term rate, rate reduction after 48 monthly on time payments, no prepayment penalty
Educated Borrower Private Consolidation Loan - $300,000 maximum, $7500 minimum, up to 30 year repayment term, no prepayment penalty and 0 to 5% origination fees
Sallie Mae Private Consolidation Loan - $275,000 maximum, $5000 minimum, 15 to 30 year repayment term, choose between fixed and variable rate, no prepayment penalty and no fees
SC Student Loan - PAL Consolidation Loan - $150,000 maximum, $5000 minimum, 10 to 30 year repayment term, choose between fixed and variable rate, no prepayment penalty and no fees
Next Student Private Consolidation Loan - $300,000 maximum, $7500 minimum, up to 30 year repayment term, no prepayment penalty and 0 to 5% origination fees
Make sure when you are considering to go this route that you clarify all the terms of the agreement as the above may have changed and that all are put in writing and signed by both parties. The best one is the one that fits your needs. There you have some of the possible lenders and the other options when considering to do the private student loan consolidation.
