Private Loan Rates Up? Not Much By This Test.

Lenders have made it clear that students with poor credit are less likely to be able to find a private student loan. Fortunately, students have good federal options. But for students or parents with good credit who decide they want a private student loan, have rates increased? Some analysts guess yes, but it is a difficult question to analyze. Unless lenders release their pricing policies (which they don’t), the only way to find out if rates have, indeed, gone up is to get old and new quotes for the same person with the same qualifications for the same type of loan.

We now have two such tests, me and a colleague. My colleague got quotes from seven lenders two years ago. This month she applied again to those same lenders. The results: four offered her a lower rate than two years ago, one offered a higher rate, one rejected her, and one had suspended operations. Combined with my results, this very small sample suggests that rates are unchanged or even down for people with good credit.

There’s another way to look at this, though: What was the lowest rate my colleague found two years ago compared to the lowest offer now? By that analysis, she would pay a rate one-tenth of a percentage point higher now than two years ago. (That’s because the one rate that had gone up was the one that was the lowest before). An increase, but a very small one.

Here are the details of my colleague’s loan offers. Two years ago (April 2006) My Rich Uncle offered her a rate of LIBOR plus 2.65 percentage points; now (March 2008) the rate is LIBOR plus 4.0, an increase of 1.35. In contrast, Access Group offered her the lowest rate this time around (LIBOR plus 2.75), a full 1.2 percentage points lower than that company’s offer two years ago. The rates from Bank of America, Sallie Mae, and Citibank had all dropped by one to two tenths of a percent. Education Finance Partners mysteriously denied her a loan this time, suggesting a co-borrower, while Loan to Learn has shut down its operations.