Student loan question

[MissB]

I fully expect this to sink to the bottom, but...

Is there someone here that either has taken out a federal student loan recently or that works in the financial aid office at a college? I'm trying to figure out whether there is some federal disclosure requirement - i.e. - when you take out a loan for X dollars, you must be informed how much that is going to cost you each month when you've graduated and finished the six month grace period.

Many thanks.

[readmoreoften]

1. No such guarantee.

If you are getting a FEDERAL student loan, you get a range of possible interest rates. If your school denies your eligibility for such loans, as mine did (even though I live below the poverty line) I would strongly suggest NOT taking a "signature" private loan or any loan with a variable interest rate. My university said that it would be "comparable" to the Federal loan that they denied me. But it wasn't,. The company is charging me 12% interest. The school said that loan "probably wouldn't" go above 7%.

Be careful.

[MissB]

2. I guess I'm not quite phrasing it right.

When I get a mortgage loan, I clearly get a disclosure statement that tells me what the fees are for the loan and what my repayment will be.

With a federal student loan (let's say Stafford Subsidzed), I realize that the interest rate will be variable while the student is in school and can't be locked in until some point during actual repayment. However, based on the principal borrowed, shouldn't the loan disperser be able to (or even required to) provide some estimate of what a loan will cost in terms of monthly payments over a set term?

I'm asking because I had to sit a relative down last night and discuss their loan amount versus what they expected to make when they graduated. On federal loans alone, that person is already looking at committing 1/3 of their net monthly income to student loan repayment. They were shocked. Unfortunately, they think they need to borrow more money (private university, little financial grants) via a co-signer on a private loan. As a complete aside, I'm appalled at the offerings of private loans - you say you're getting charged 12% - this one was merely 9% but likely to hit at least 11% soon. The relative would've had to commit *at least* 2/3 of their net salary to student loan repayment for a period of 10 years, and then another 1/3 for the next 10 years.

Holy shit. They simply had no idea. I'm struggling with the disbelief that the university's financial aid department didn't inform them of any sort of estimated payment.

[Sydnie]

3. Try poking around here

http://studentaid.ed.gov/students/publications/repaying_loans/2003_2004/english/repayment-plans-best.htm

[MissB]

9. Thank you!

Great real-life examples in that link.

[readmoreoften]

7. Federal Loans will give you a cap, and you can use a calculator to figure

it out.

But it can vary once you get out depending on the rate that you consolidate at. For example, at another university I was given Stafford Loans. I think the "high end" was 5.3%, but I locked in at 4.7%. I owe 40,000 and I will pay $157 a month for, basically, the rest of my life. I got ONE private loan, that estimated that the rates would fluctuate between 5 point something and 8 point something, but then they jacked it up to 12% (and never told me, by the way, or actually, sent the letters to the wrong address. The university never even told me how to get in touch with the lender or who the lender was.) That original loan was for $8,800 and I will be paying something like $140, basically, for the rest of my life for that loan. Assholes!

Federal: $157 for $40,000
Private: $140 for $8,800

I believe that private universities are scamming the public. They said that I was not eligible for federal funding even though I made under $5000 that year in income. They strong-armed me into taking a private loan, saying I would have to drop out for the semester and pay a "maintaining matriculation fee" of over $1000 if I didn't take the loan they were offering.

I've had such a terrible time attending and working for a private university that I've stopped believing in them. They take tuition and government subsidies, make a profit, pass it on to their higher ups in the form of high salaries/free houses/etc.

I think all those funds should go to well-audited public universities and private universities should be on their own.

[MissB]

10. We had to estimate

based on the approximate amount they thought they'd need and the current cap on interest rates at the federal level.

I'm sorry about your experience. I'm in my 30's and still paying my loans from my degree. :) It does suck.

[SlipperySlope]

4. Yes, it is required.

First point; there are all kinds of loans, federal loans, stafford loans, and they all have their own rules.

But in general, all loans require a "loan disclosure statement" or "loan repayment statement" to be part of the promissory note. When you make the application, you aren't committing to accept the loan. In fact, you usually don't even know at that point how much your loan is going to be approved for.

Once your loan is processed, and you are presented with a promissory note to sign, that is when the disclosure is presented.

However, I've observed that students don't pay attention to what they are signing. Even if they are, the disclosure statement will only include repayment information for THIS loan, and student's often forget about all the other student loans they are taking out semester after semester and how they add up.

Finally, the lender is only able to make an ESTIMATE of your payment schedule. Since interest keeps accruing while you are in school, and they don't know how long you are going to be in school, they don't know what your total is going to be when you come out of deferment. They also don't know what the rates will be when you come out of deferment (if you have a variable rate loan). Finally, sometimes loans let you pick your own repayment schedule, and they don't know what you will pick.

As an example of disclosure requirements, see 20 USC § 1083

[MissB]

6. Thanks

It is likely that the relative did receive the disclosure and didn't pay attention to it. We were trying to point out last night the effect of taking out such large student loans but apparently it would've been easier to simply spend my time hitting my head against a brick wall.

:hi:

[readmoreoften]

13. Private loans are different, though. The language is trickier.

When I signed onto my private loan, it said that the interest was variable, but it gave an estimate on what that variable might be. Then, of course, it veered completely away from its "estimate." When I called the FAFSA folks, they suggested that I complain to the better business bureau about the university and its misinformation/lack of information. I was boldly given misinformation by the financial aid office.

Make sure you find out what company you have your loan through. Make sure to talk to them about to confirm the information that you are getting from your university.

I'd suggest that these folks reapply to a state school as long as the student's field of study is available. (Or unless the major is business, where part of the university experience is making contacts with the elite.)

[GaYellaDawgDem]

5. You are on the right track

The law is here - http://a257.g.akamaitech.net/7/257/2422/01nov20051500/edocket.access.gpo.gov/cfr_2005/julqtr/pdf/34cfr682.205.pdf but in plainer terms - the disclosure requirements are pretty much covered when the student completes the Master Promissory Note (MPN -http://www.ifap.ed.gov/dpcletters/attachments/FP0608StaffApp2008.pdf). The MPN includes a handy loan payment calculator on page 8 of the note. When the loan is about to go into repayment the lender is required to notify the borrower of the repayment amount and terms at least 30 days before the first payment is due.

I hope that helps!

25 year F/A vet

[MissB]

8. Both of those links were very helpful

Thank you very much. The table on page 8 will be very useful, although it seems that the relative is still seeking a private loan, resulting in nearly $60k in loans. Sigh. There is something in there about leading a horse to water, right?

[SlipperySlope]

12. I have a relative in a similar deep, deep, hole - N/T

[SlipperySlope]

14. Best answer posted...

Take the info of a pro (GaYellaDawgDem) over that of a hack (me)

[GaYellaDawgDem]

15. No, you're points are valid too

...particularly that too large a number of students don't pay attention. In the world of hurry up, get it done students are often asked to sign forms without making absolutely sure they understand what they are signing.

[elehhhhna]

11. Loans must have a "Truth in Lending" statement and what you want

is an amortization schedule. Google "loan amortization calculator" & plug the info in.