Background:

The loan industry is becoming ever more confusing and competitive offering an array of front and back end borrower benefits that sometimes defy comparison from one lender to another. In our search for the most competitive lenders we reference the January 2007 issue of the Greentree Gazette, the business magazine for Higher Education. In January of each year, the Greentree publishes an extensive Student Loan Buying Guide. The Buying Guide lists 24 Stafford loans with discounts which can be viewed on page 119 of the January 2007 issue. This table provided a foundation to begin our analysis and selection of a preferred lender list.  The preferred lender list reflects our decisions made as of 02/12/07.

Step 1:

From the guide above, we selected the 15 lenders with the lowest possible interest rate during the life of the loan, including both front end and back end benefits. To this list, we added the AAMC Medloan program and the Total Higher Education (T.H.E.) medical loan and the OU-COM Federal Stafford School loan program which were not listed in the Greentree Gazette.  The OU-COM Federal Stafford loan has the added advantage of generating need-based scholarships for medical students at OU-COM.

Step 2:

We reviewed the selected lender's web pages, contacted the lenders for additional information, where needed, to determine the terms and conditions of these loans.

Step 3:

We analyzed the data to create our Preferred Lender list.

Here are the criteria we used to select the preferred lenders for 07-08:

1.  The loan should have zero fees charged to the borrower. Although lenders can charge up to 3% origination and default fees upfront in 07-08, we selected only lenders who paid both the fees on the behalf of the borrower.

2.  Identified the loans with the lowest interest rate at disbursement. These programs offer a reduction to the unsubsidized Stafford loans, which accrue interest from the time of disbursement. This is a benefit the borrower would not need to earn.  The AAMC Medloan Program and the OU-COM Stafford loan met the criteria offering a 6.5% interest rate at disbursement.

3.  Identified lenders offering significant back end benefits (at least 1% discount in principal or interest and a discount for ACH that activated a rate reduction within 12 months or earlier  based on “on time” payments). While many lenders offered significantly competitive back end benefits, many did not begin until 24 months or more of on-time payments. Back end benefits must be earned by the borrower. Historically, they have a high “breakage” meaning that if the borrower missed a payment they lose the benefit. Many reports estimate that as few as 15% of the borrowers end up receiving these benefits either because they refuse ACH payment, miss a payment or they have insufficient funds when the payment is submitted via ACH.

The longer the borrower needs to comply with payment terms to receive financial relief, the least likely they would be to attain the benefit.  The Medloans Program, The OU-COM Federal Stafford loan, Chase and Student Lending Works, AES, SunTrust and T.H.E. met this criteria.

Note: It is difficult to analyze the impact of these benefits if borrower's behavior is in compliance.  The interest rate reduction is impacted by the length of repayment. Credit balance reductions are more stable but still make it impossible to estimate for an individual borrower.

4.  The loan does not capitalize until after the deferment periods, provided the borrower applies for continuous deferments. Given our borrower population applies for as many as 3 annual deferments prior to entering into practice, this is a significant savings to the borrower.

All lenders met this criteria.

5.  We chose lenders who met at least 3 of these criteria (2 lenders met all 4 criteria). The following lenders met these criteria: AAMC Medloans, Chase, The OU-COM Federal Stafford loan, Total Higher Education (T.H.E.) and Student Lending Works.

These lenders were selected for our preferred lending list with the understanding that we will process any Federal Stafford loan a student requests.