Tuition Choice

Rates and Fees

• What happens after credit is approved?
  • For many alternative loan products, interest rates and/or fees are determined by “tiered pricing”
  • Generally speaking, the higher the FICO, the better the rates & fees that will be offered
  • Borrowers should look for and know these terms before signing the final loan documents
• Tiered Pricing
  • Lenders establish a FICO range per tier (generally confidential)
  • Borrower(s) remain in their pricing tier for the life of the loan
  • Interest rates and/or fees may vary depending on the repayment option the borrower chooses
  • Most, if not all, alternative education loans are variable rate loans based on either the Prime or LIBOR index
  
  

  FICO	% rate	fees
  Tier 1	Libor +3.1%	0% - Immed. repay 0% - defer. repay
  Tier 2	Libor +4.0%	1% - Immed. repay 1.5% - defer. repay
  Tier 3	Libor +4.5%	2% - Immed. repay 2.5% - defer. repay
  Tier 4	Libor +5.0%	4% - Immed. repay 5.5% - defer. repay
  Tier 5	Libor +6.0%	6% - Immed. repay 7.5% - defer. repay

• Are there alternative loans that do not use tiered pricing?
  • Some loans may offer zero fees to all approved borrowers but still use pricing tiers for interest rates
  • Customized alternative loan agreements between a school & lender are likely the only way in which all approved borrowers receive the same rate & fee structure
  • Do you consider Home Equity and personal loans to be alternative education loans?
• Prime and Libor Indices
  • Prime rate (also known as Wall Street Journal Prime)
  • Basically a consensus rate that large lenders charge their best corporate customers
  • Published daily by the WSJ and can change at any time
  • Banks tend to change their prime rate whenever the Federal Reserve Board raises or lowers its target federal funds rate, usually in the exact amount of the fed change
  • Currently, Prime is 8.25%. As recently as December 2001, it was 4.25%
  • Historically, Prime has always been 3% above the current Federal Funds rate
  • LIBOR index
    • Stands for London Interbank Offered Rate
    • It is the rate which banks borrow money from each other in the London interbank market
    • Gaining momentum within alternative education loan market because there are several LIBORS (i.e. daily, weekly, monthly, quarterly & yearly)
    • Longer indexes, such as the 3-month rate, give lenders & borrowers a less volatile rate
    • Lenders typically set rates based on the averages of the 1 month LIBOR and 3 month LIBOR
    • Currently, the 3-month LIBOR is 5.32% (both lenders and borrowers can count on four interest rate variations per year; no more, no less)