Sunday, July 13, 2008

Discover Student Loans 0% Origination Fees

"Back when I was your age, student loan lenders would provide loans charging no origination fee or guarantor fee!" It looks like that's what we may be telling our children and grandchildren when they choose to go to college.

Because of changes in the student loan industry along with the mortgage crisis, many banks are folding out of the student loan industry altogether. When big players like T.H.C. are calling it quits, you know there are going to be some changes.

Many college and graduate students rely on Stafford loans to help them get by. The low interest on the unsubsidized along with the subsidized Stafford loans help students afford an education without being overly indebted due to interest payments. However, with the recent changes, many banks have switched from 0% origination fee and 0% guarantor fee - to a 1% charge for each for the upcoming 2008-2009 school year. When you're talking about a $10k loan, that's $200 instantly out of your pocket - that could pay for an entire biology textbook! (or more)

Searching far and wide, the only bank I've found that now offers 0% origination fees and guarantor fees for Stafford loans is Discovery Student Loans. When I emailed my choice to my financial aid office, one of the loan counselors was wondering why I had decided this one because she had never heard of it in her years as a loan counselor. It's true, Discovery Student Loans is part of Discovery Financial Services, which spun off Morgan Stanley just last year, so they are new to the student loan industry.

Trying to do some more research, I called the company to explain my worries about the student loan market and why they think they will be able to withstand the downturn in the economy. As they explained it, they are not tied up in the mortgage industry since most of their funding is tied to credit cards. Although I don't claim to know much about Wall Street, their 2nd quarter profits were higher than expected, they are expanding into China, and they were ranked among the top 100 workplaces for IT professionals, so I believe they are all good signs for the company.

In the end, I went with Discover Student Loans. I figure the positives far outweigh the possible risks. If they decide to pull out of the student loan industry, at least my loans are good for this coming year, and the chance that I may have to switch lenders is a small inconvenience for the fact that I could save a couple hundred dollars.

Related topic - Never pay off student loans early!

An apology for the former readers: Sorry it's been a long time since I posted, and I probably won't be able to post as often unless I find something very important, but I'll try to post more often than once a year ;-)

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