As a general rule, students should only consider obtaining a private student loan if they have maxed out the Federal Stafford Loan. They should also file the Free Application for Federal Student Aid (FAFSA), which may qualify them for grants, work-study and other forms of student aid. Undergraduate students should also compare costs with the Federal PLUS Loan, as the PLUS loan is usually much less expensive and has better repayment terms. The fees charged by some lenders can significantly increase the cost of a private student loan. A private student loan with a relatively low interest rate but high fees can ultimately cost more than a loan with a somewhat higher interest rate and no fees. Did you know the lenders that do not charge fees often roll the difference into the interest rate? A good rule of thumb is that 3% to 4% in fees is about the same as a 1% higher interest rate. Be wary of comparing loans with different repayment terms according to APR, as a longer loan term reduces the APR despite increasing the total amount of interest paid. Financial Aid Loan Analyzer Calculator may be used to generate an apples-to-apples comparison of different private student loan programs. The best private student loans will have interest rates of LIBOR + 1.8% or PRIME - 1.00% with no fees. Such private student loans will be competitive with the Federal PLUS Loan. Unfortunately, these rates often will be available only to borrowers with great credit who also have a credit worthy cosigner. It is unclear how many borrowers qualify for the best rates, although the top credit tier typically encompasses about 20% of borrowers. Generally, borrowers should prefer private student loans that are pegged to the LIBOR index over loans that are pegged to the Prime Lending Rate, all else being equal, as the spread between the Prime Lending Rate and LIBOR has been increasing over time. Over the long term, a loan with interest rates based on LIBOR will be less expensive than a loan based on the Prime Lending Rate. About half of lenders peg their private student loans to the LIBOR index and about 2/5 to the Prime lending rate. Some lenders use the LIBOR rate because it reflects their cost of capital. Other lenders use the Prime Lending Rate because PRIME + 0.0% sounds better to consumers than LIBOR + 2.80% even when the rates are the same. It is not uncommon for lenders to advertise a lower rate for the in school and grace period, with a higher rate in effect when the loan enters repayment. Often the interest rates, fees and private student loan limits depend on the credit history of the borrower and co-signer, if any, and on loan options chosen by the borrower such as in school deferment and repayment schedule. Loan term often depends on the total amount of debt. Most lenders that require school certification or approval, will cap the annual private student loan amount at cost of education less aid received (COA-Aid). They may also have an annual dollar limit as well. Lenders rarely give complete details of the terms of the private student loan until after the student submits an application, in part because this helps prevent comparisons based on cost. For example, many lenders will only advertise the lowest interest rate they charge (for good credit borrowers). Borrowers with bad credit can expect interest rates that are as much as 6% higher, loan fees that are as much as 9% higher, and private student loan limits that are two-thirds lower than the advertised figures.
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The Seattle Times has an article about what to do when you purchase a non-refundable ticket and then notice the fare has dropped. Basically, their advice is to ask politely for a refund, and they have a nice round-up of airline refund policies:
•Alaska Airlines/ Horizon Air: Travel voucher good for one year for the difference in fares, minus a $10 service charge.
•Northwest Airlines: Two options: Voucher good for one year, less a $25 service fee. Cash refund, minus a $100 fee.
•US Airways/America West Airlines: Voucher good for one year issued at no charge. Cash refund, minus a $100 fee. Certain promotional fares excluded.
•United Airlines: A United spokeswoman would not respond to phone and e-mail requests for clarification on the airline’s policy.
Information on its Web site says that United will issue a voucher good for one year for domestic flights, and apply a (unspecified) fee on international tickets. Two reservations agents with whom I spoke said the airline would not charge a fee in either case.
•Continental Airlines: Voucher good for one year, minus the normal change fees applicable to the original fare (usually $100 on domestic flights and $200 on international). “However, we work with customers on a case-by-case basis if individual circumstances apply,” said spokeswoman Susannah Thurston.
•Delta Airlines: Voucher good for one year, less change fees applicable to the original fare (usually $50 for domestic flights and $200 on international).
•American Airlines: Cash refund for the difference in fares, less change fees applicable to the original fare (usually $100 for domestic flights and $200 on international).
The airline’s Conditions of Carriage agreement adds, “When reduced fares are for sale for a limited period of time, American reserves the right to decline to issue refunds.”
•Southwest Airlines: Credit for future travel within one year; after that, a voucher good any time. No service fee.
•JetBlue Airways: Voucher good for one year. No fee. If a sale fare applies to a different itinerary or flight times, JetBlue allows customers to cancel the original booking with no penalty and rebook the new flight.
