There is a lot to consider in selecting a lender

There has been a lot of discussion lately about the practice of schools' choosing "preferred lenders" and the impact this might have on a school's relationship with the lender and the ability of a student to get the best interest rates on a loan. I'd like to weigh in on this topic from a Wellness perspective.

Let me start by emphasizing that under our Wellness philosophy, we support whatever is in the best interest of the student. But in the area of lender selection, the emphasis on "the best interest rate" may not always be in the best interest of the student. There are three other factors which must also be considered.

First, when we talk about "interest rate" for federal loans, we are really talking about repayment benefits, since the actual rate is set by law. Some lenders will offer discounts on the rate after a period of successful on-time repayment. Others offer discounts when borrowers sign up for automatic deductions from their bank accounts. These promotional devices are pretty standard for most lenders, and the difference among lenders for these "benefits" on FFELP loans is rather narrow. It is, however, one of the things financial aid professionals do consider in selecting a preferred lender. But it is not the only thing.

How does a school process its loans? There is a vast difference between institutions in their ability to process FFELP loans and this is often dictated by the financial aid management software they have available. Not all schools have the ability to interface with all lenders easily. I think most students would agree that quick and timely delivery of their loan funds is important. Schools chose lenders with whom they can process efficiently.

Who services the lenders loans? Not all servicers are created equal. In choosing a lender, schools want to be assured that after a student leaves them that they will be served efficiently in the repayment process. Does the servicer have the ability to quickly receive and process deferment and forbearance forms? Does the servicer have the staff to adequately council borrowers? Schools chose lenders who use servicers with a good track record.

And finally, what guarantor will the lender use? You know that I believe the guarantor does make a difference. With our borrower-centered Wellness philosophy, the ASA guarantee does support the work of the lender and servicer in assisting students to maintain a healthy repayment program. Schools choose lenders who use appropriate guarantors.

So, yes, we need to keep the best interest of the borrower in mind, but in choosing a preferred lender, that is not always a matter of the best interest rate or repayment benefits. There is much more to consider. And I support financial aid professionals who are best able to wade through all the considerations of lender, servicer and guarantor to make suggestions which are in the best interest of the borrower.

Best, Duane

Posted by Duane Quinn on October 27, 2006 at 10:57 AM EST

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