When Selecting Your Student Loans, It Pays to Have Someone in Your Corner

Internship assignment on the expected ramifications of recent regulatory changes on student borrowers pays off for both EC student and company. Here, Tali shares some of what she learned with her fellow HBSers.

After spending my summer internship with Graduate Leverage (a free student debt advisory founded by Jeff Wanic ’04, Andrew Solomon ’04 and Dan Thibeault ’04), I read with interest a recent article in Harvard University’s student paper. The staff of the Crimson newspaper recently called for Harvard graduate financial aid offices to make some significant changes with regards to the loan and lender information that is communicated to students (See “Flirting with Financial Aid,” //

Specifically, The Crimson raised concern that Citibank is the only supplemental loan provider listed on many of the graduate programs’ websites (HBS & HLS included). Citibank, through its contractual relationship with the University, benefits from “preferred lender” status that garners them the vast majority of private loan volume at Harvard’s graduate schools. In exchange they provide submarket priced loans through a risk-sharing agreement with the university. But while Citibank may provide superior terms for some students (international students and students with derogatory credit) most students are disadvantaged due to the lack of relevant information about alternative funding sources that are actually more cost effective than a CitiAssist loan. In addition to The Crimson, other institutions have recently raised concerns with transparency between schools and lenders. Local Senator Edward Kennedy (D-MA) recently introduced the Student Loan Sunshine Act, which calls for both greater transparency and competition among lenders.

During my internship, I helped develop this information and focused specifically on the expected ramifications of recent regulatory changes on Graduate Leverage’s (GL) student borrower base. Having assisted over 50,000 graduate students with loan selection totaling more than $2.5 billion since inception (including 97% of HBS ’04s, ’05s and 06s), GL prides itself as the first student loan intermediary, providing objective advice on both loan and lender selection.

Specifically, my research centered on two key legislative changes. The first change called for an overhaul of the federal Stafford loan program-replacing the previously variable-rate Stafford loan with one fixed at 6.8% (a 2% increase from a year ago). But even more pertinent to graduate students was another regulatory change that that now allows them to take a federal, Graduate PLUS loan (previously available only to parents of undergraduate students). PLUS loans have a fixed rate of 8.5 percent but many lenders offer incentives that can drastically reduce this rate. In fact, I found that HBS students who used GL’s recommendation service to identify the most cost efficient PLUS offering save more that $3,000 prior to graduation (as compared to taking out a CitiAssist Private Loan). Those students who take both a Stafford and PLUS loan based on GL’s recommendation save over $4,000 before they graduate (as compared to taking out a Direct Stafford Loan & CitiAssist Private Loan).

After returning to HBS this fall, it quickly hit home how little we really know about our student loans. I knew there had to be some systemic issue, and while reconnecting with Dan Thibeault he framed the issue succinctly. “The fundamental issue within the industry is one of agency. For-profit lenders will always seek to maximize profits, as they should. Schools however, while attempting to keep the students’ best interests in mind, lack the analytical resources and flexibility required to secure borrowers the best possible deal. Our group has addressed this issue by operating as an intermediary, which is why we believe all schools should promote both lenders and student loan intermediaries as a resource for students. The cost of financing an MBA is equivalent to purchasing a condo or starting a retirement savings account, so of course I’d recommend people seek independent professional support.” I would have to agree and further invite you to sign-up for a free recommendation on your next semester’s loans, at Graduate Leverage’s loan assessment portal //

December 11, 2006
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