Be Cautious With Regard to “No Closing Costs”

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Michael Tapscott
Director of the Multicultural Student Center
George Washington University

It is no secret that as higher education costs go up, inevitably, many students will be more dependent on financial aid. Recent federal legislation ensures that eligibility for a higher loan amounts will grow while federal grant programs remain stagnant. Loan maximums for freshmen and sophomore students will increase but there will be no corresponding increase in federal grants.

Student loans will continue to play an important role in the recruitment and retention of our students. As our students take on increasing debt loads to attend our institutions, our responsibilities to educate them on the best value become more important. We are no longer in a position to provide a list of loan options for students and their families to consider. More often, these students and families are relying on professionals in the Financial Aid Office to provide financial planning services. They rely on professionals to provide informed answers, not options.

Some students and families are immediately attracted to loans being offer with discounted or “no closing cost” up-front fees. While this seems initially attractive , the student fails to examine the total cost of the loan – that is , what is the actual cost over the life of the loan? I have reviewed cost comparisons from several lenders. A lender offering no fees up front can save a student from two to three percent initially. That translated to 60-80 dollars on a  freshman loan. Other lenders, while charging an up-front fee, offer repayment incentives and other befits that can reduce the costs for students by hundreds of dollar over the life of the loan. Incentives for good repayment are also positive reinforcements for building and maintaining good credit.

College and university administrators as well as financial aid professionals, must help students and their families to make informed decisions. The best financial advice includes long-term repayment considerations as well as short-term discounts on initial disbursements.

While it seems an uphill battle to fight the immediate gratification of no closing costs, it is part of our educational role outside the classroom to discuss all aspects of student loans. We must provide information on both initial costs and the long-term costs of borrowing over the life of the loan. I would counsel a student not to get a free pizza or free Frisbee to get a 23% credit card…..and I recommend the students to examine the total cost of their student loan.


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