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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Anonymous Anonymous said...

He's back!


July 16, 2008 at 1:00 PM  
Anonymous Anonymous said...

Lenders are not being stingy. Lenders can no longer afford to offer 0% fees. The government has reduced lender benefits so much that there just isn't enough profit to offer much in the way of borrower benefits anymore. By the way, you failed to mention that the origination fee MUST be paid to the US Department of Education and the guarantee/default fee MUST be paid to the guarantee agency. This isn't money the lender gets to keep by not passing the expense on the borrowers (until about three years ago, these fees were ALWAYS paid by the borrower). I work (at least for another few weeks) for a bank that has been forced out of the student loan business due to cuts in lender benefits by Congress and by the problems are secondary markets are experiencing with cost of funds due to the sub-prime mortgage disaster. We participated in the Federal Family Education Loan Program for almost 40 years, taking pride in assisting students and their families in achieving their goal of a higher education. Frankly, I am tired of hearing how nasty and evil lenders are. Like every other business we are made up of regular, every-day people, not monsters. The current problems in student lending are the result of a democratic congress trying to force lenders out of the business so that schools have no choice except the Federal Direct Loan Program. You might want to check out their borrower benefits...they don't exist.

July 17, 2008 at 3:34 PM  
Anonymous Lender Reseacher said...


I just applied for a both a Stafford Subsidized and an Unsubsidized Loan form Discover Student Loans. After doing some research on different lenders I chose Discover because they seem to offer some of the best benefits in the market (at this precise moment in time) for Stafford Loans. They offer Zero Origination Fee, Zero Guarantor Fee, and Zero Prepayment Fee; and 2% cash-back upon graduation (for private student loans).

I see this post was written exactly one year ago. I was wondering if everything has gone well Lending from Discover. Have you had any problems? Any concerns? I believe their Guarantor is Grate Lakes, have you had any issues dealing with them as you go into Repayment? Any feedback would be appreciated thank you in advance.

July 13, 2009 at 12:03 PM  
Blogger Stingy Student said...

I have been using Discover Student Loans for the past two years without any issues. I haven't gone into repayment yet, but I will next year, so I'll keep you updated.

July 26, 2009 at 8:28 AM  

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