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What college offers the best deal on a loan?

For those in the know, there’s an amazing deal available for financing your student’s college degree. It’s a 1.2 percent no-fee loan, but there’s a catch: Your child first needs to get accepted into Princeton University.

Princeton is the only Ivy League school that offers financing to families, with a rate that’s lower than what is offered by the federal government, notes Bloomberg News. Even high-income families can apply for the loan, given that it has an upper income limit of $500,000. Of course, the odds of getting into the prestigious college are low, with the school last year admitting only 7.3 percent of applicants.

The deal may seem like an another unfairness in a world where the elite appear to get special breaks, ranging from subsidies for private jets to yachts. But that 1.2 percent loan, while enticing, does come with one major limitation: It is only for a variable-rate loan, which means the rate is likely to rise after an initial fixed period.

Nevertheless, for Princeton parents who opt in favor of the university’s fixed-rate loan, that, too, is below federal levels. Princeton will help finance your child’s tuition at a fixed rate of 4.3 percent, compared with the federal government’s current rate of 6.4 percent for its Direct PLUS loans. The government’s loans also carry a 4.3 percent origination fee, adding to it costs.

Financing a college education is financially stressful for many families. The cost of a college degree has jumped more than 12-fold during the past 30 years, according to a 2012 survey by Bloomberg. Not surprisingly, seven out of 10 college seniors graduated with debt last year.

Attending Princeton isn’t cheap — a four-year degree will set families back $217,300, according to a survey from compensation site PayScale. That’s less than some other top schools — Harvard University carries a four-year price tag of $225,700 — but students are expected to recoup that investment, PayScale notes. That’s because Princeton students will benefit from a 20-year return on investment of $690,800, making it the 13th most favorable university when looking at long-term earnings potential.

Add in a low-cost loan, and Princeton students are likely coming out ahead of their cohorts. After all, other students will be carrying loans with interest rates at least two percentage points higher than those lucky few Princeton tigers.

How Is Discover Financial's Business Model Different From Visa's?

In a recent article, we looked during label hulk Visa’s business model. The company’s cards are released by banking partners and used by cardholders to squeeze products or services from a businessman around an electronic transaction. In this article, we review Visa’s Visa’s indication with that of another label company, Discover Financial.

Discover has been expanding a approach banking services charity personal, home and tyro loans though credit cards sojourn a many critical business; credit label loans comment for 80% of a company’s loan portfolio.

Our $46 cost guess for Discover Financial implies a bonus of 20% to a stream marketplace price.

See Our Full Analysis for : Discover Financial|Visa

A Recap Of Visa’s Model

Once a cardholder uses a Visa label to lift out a transaction, information is eliminated around Visa’s network to a issuer bank and to a merchant’s bank, famous as a acquirer, for authorization. The acquirer sends a clearing record containing transaction information that is processed for a final allotment between a issuer and a acquirer. This three-step routine is famous as authorization, clearing and allotment and is a primary use offering by Visa by a network. Visa also offers value total services like comment turn processing, faithfulness reports and brawl resolution.

When a Visa credit label is used by a consumer, he or she is released a loan, a risk of that is borne by a issuer and not Visa. The issuer earns seductiveness from a cardholder on a loan and also charges a label price for a use of a card. The seductiveness rate and a price are motionless by a issuer. The businessman is charged a businessman bonus price by a acquirer. On squeeze transactions, acquirers are compulsory to compensate an rotate payment price to a issuer bank. Visa does not acquire any of a aforementioned fees. Instead, it charges information estimate fees and use fees from a financial clients. These fees are charged on a basement of a volume of exchange processed of a customer and a sum dollar volume of a transactions. Visa’s business is so volume dependent; a some-more times a company’s cards are used, a some-more it earns.

What About Discover?

Discover has a closed-loop network, behaving both as a issuer and acquirer. Unlike Visa, Discover issues credit cards directly to consumers, permitting business to say revolving credit label balances on that a association earns interest. This seductiveness income accounts for some-more than 60% of Discover’s revenue. Discover also earns bonus revenues from merchants and fees for late payments, money allege exchange and change send exchange from cardholders. Fees and seductiveness rates are set in contractual agreements with merchants and cardholders.

Discover’s Strength

Unlike Visa, Discover’s business is not volume driven though is some-more reliant on a loan change that a association is means to say and a seductiveness it can acquire on this balance. Therefore, it is critical for Discover to foster a use of a cards over those of competitors. To this finish Discover’s categorical strength is a Cashback Bonus rewards program, that allows cardholders to acquire rewards when they use Discover credit cards. Some of a many renouned products offering include:

1) Discover IT label and Discover More card, that offer 5% money behind on several categories that change via a year.

2) Discover Open Road Card, that offers 2% money behind on a initial $250 spent in total gas and grill purchases any billing period.

3) Discover Motiva card, that offers money behind of 5% of seductiveness charges any month for creation on-time payments.

4) Discover Business card, that offers 5% money behind on a initial $2,000 spent on purchasing bureau reserve any year.

Note: Discover does not news a money returned to business as an responsibility object though annals it as a rebate in price revenue.

Princeton Parents Win Jackpot With Low-Interest Education Loans

For parents looking to pay for college, one of the best deals comes with a 1.2 percent, no-fee loan. The hitch: Your kid has to get into Princeton University.

Princeton, which accepts only 7.3 percent of applicants, is alone in the eight-member Ivy League in offering financing to parents. Its loans are cheaper than those offered by the federal government, and families with annual incomes of up to $500,000 may qualify.

“That’s the best deal of the century,” said Ron Them, co-founder of the National Institute of Certified College Planners.

While wealthy colleges like Princeton are generous in need-based financial aid, families are still responsible for the portion of costs not covered by grants and scholarships. Princeton’s loans — at 4.3 percent for fixed and 1.2 percent for variable — aim to help parents better afford their children’s education, said Robin Moscato, director of undergraduate financial aid.

Princeton’s endowment was valued at $18.2 billion as of June 2013, making it the fifth-richest school in the U.S., according to the National Association of College and University Business Officers. The university is able to provide families with a lower-cost alternative and to help them stretch out payments, Moscato said.

Photographer: Emile Wamsteker/Bloomberg

Pedestrians walk past a statue of former Princeton University president John… Read More

Pedestrians walk past a statue of former Princeton University president John Witherspoon near the East Pyne building on the school’s campus in Princeton, New Jersey. Close


Photographer: Emile Wamsteker/Bloomberg

Pedestrians walk past a statue of former Princeton University president John Witherspoon near the East Pyne building on the school’s campus in Princeton, New Jersey.

“We should do it, and that’s what we do,” Moscato said.

Interest Rates

The interest rate on the U.S. government’s parent PLUS loan is 6.4 percent, and it carries a 4.3 percent origination fee, which the Princeton, New Jersey-based school doesn’t charge on its loans. Congress sets the rates for federal education loans every year linked to financial markets. Undergraduates can take federal loans in their own names at 3.86 percent, with an annual limit of $5,500 to $7,500.

Outstanding education debt in the U.S. has climbed to $1.2 trillion, more than total credit card debt. Parent borrowing for college makes up almost 13 percent, according to estimates from Mark Kantrowitz, publisher of Edvisors Network Inc., a Las Vegas-based operator of college financial-aid websites.

For families that have tapped Princeton’s parent loans, the average annual amount borrowed is $19,000 for those receiving need-based aid and about $36,000 for those that don’t.

Princeton uses its creditworthiness to secure loan funds through Bank of America Corp., said Martin Mbugua, a spokesman. The school doesn’t dip into the endowment. Through June 2013, Princeton has extended about $102 million in loans, of which $43.3 million is outstanding, he said.

Parents Pay

The loans are available based on a family’s credit history and their ability to meet repayment terms. Parents have 10 years after their child graduates to repay.

In the past four years, about 10 percent of undergraduate parents — about 500 families — have taken out any type of parent loan, and 95 percent of them used the Princeton program, Moscato said.

“Based on the very low rate of borrowing, those who are using the program are exactly those we intended it for,” Moscato said. “Otherwise you’d see higher participation of families wanting to take advantage.”

Princeton offered admission to 1,939 students for the class entering this fall out of more than 26,600 applicants, the school said last week.

Families that don’t qualify for need-based aid can borrow from the school up to the cost to attend, which can top $60,000 a year. Tuition, fees, room and board for the 2014-2015 academic year are $55,440. Other costs include transportation and books.

Financial Aid

The average grant for incoming freshmen receiving financial aid is expected to be $42,700, according to Princeton. Its financial-aid budget for the next academic year is $131 million. Princeton doesn’t include student loans in its financial-aid package.

The university will also consider loans to families with incomes over $500,000 with special circumstances, including having more than one child in college or high medical expenses.

Princeton has been offering parent loans since at least the mid-1980s, Moscato said.

Some schools, while not extending loans to parents, have direct loan programs for students, some of which are interest-free. As of 2008, Pomona College, a liberal arts college in Claremont, California, has offered no-interest loans to students, though they are limited to about $5,000 annually, said Mary Booker, director of financial aid.

Ivy Loans

Other universities offer loans, mostly for international students who don’t qualify for U.S. government borrowing. Interest rates on loans made by Brown University, in Providence, Rhode Island, range from 7 percent to 9 percent. Yale University, based in New Haven, Connecticut, has a loan that carries a 7.5 percent rate.

Cornell University, based in Ithaca, New York, has a three-decade-old, need-based student loan program for undergraduates. The loans have an 8 percent rate, and they don’t accrue interest while students are in school, unlike most federal loans.

Princeton’s loans for students who don’t qualify for federal aid are mostly at 5 percent. While the students remain in school, any accrued interest is picked up by the university, Moscato said.

To contact the reporter on this story: Janet Lorin in New York at

To contact the editors responsible for this story: Lisa Wolfson at Chris Staiti, Kevin Miller

What Was the First Student Loan?

I don’t know about you, but I have a love-hate relationship with Facebook — it’s helpful but also really annoying, and even though it enables me to discover new things, it’s a major drain on my resources. I feel the same way about my student loans.

Fun fact: Both started at Harvard University. I guess I love-hate Harvard, too.

Where It All Began

Student loans have become a heated topic in the past several years, as outstanding student debt tripled over the course of a decade and now exceeds $1.3 trillion. More people are going to college, and the price of higher education has skyrocketed, which contributes to the hefty student loan payments many Americans deal with every month.

Despite the problem, student loans still serve their original purpose. A student loan is a tool consumers can use to pay for a college education, and it has been around since 1840.

That’s when Harvard University established the first student loan program.

How Student Loans Grew

The government created the Department of Education 47 years after that first loan program at Harvard, and a collection of financial aid programs and legislation emerged during the next few decades, including the GI Bill, Fulbright Scholarships and the National Science Foundation Act.

Harvard comes into the picture again in 1953 when its financial aid director, John Monro, created the first need analysis formula, according to a timeline of student financial aid on The first federal aid program for low-income students came shortly thereafter, in 1958. Scholarship programs and education aid laws spawned throughout the 20th century, and in 1976, a piece of legislation had a big impact on student borrowers. The first of many updates to the U.S. Bankruptcy Code excluded some student loans from being discharged in bankruptcy. In 1978, the ability to discharge student loans through bankruptcy was eliminated.

Where We Are Now

Student loans are not demonic (though they’ve often be demonized in popular culture and the media), but they’re causing huge problems for those who have them, as well as the U.S. economy. The fact is you have to pay your student loans, so if you take out more than you can afford, you’re looking at stunted financial growth.

It’s a good rule of thumb to graduate with no more student loan debt than your annual salary at your entry-level postgrad job. The government has instituted income-based repayment options for underemployed borrowers, and the debate surrounding loan interest rates and refinancing has continued to bounce among lawmakers, educators, lenders and borrowers. There’s a lot of room for improvement.

But for the time being, if you’re looking to take out student loans, think back to their original purpose: to help you afford a college education. Taking on six figures of student debt — while it gets you that education — isn’t necessarily a good idea. Consider your best options, from the school you attend and degree you earn to the scholarships you can apply for, in order to make the tool work for you.

If you already have student loan debt and want a better understanding of how it’s affecting your credit, there are free tools on that will show you two of your credit scores for free, plus a breakdown of the major factors impacting those scores.

More from

  • How Student Loans Impact Your Credit
  • How to Pay for College Without Building a Mountain of Debt
  • How to Consolidate Student Loans

$1T student loan debt widens US wealth gap

Every month that Gregory Zbylut pays $1,300 toward his law school loans is another month of not qualifying for a decent mortgage.

Every payment toward their student loans is $900 Dr. Nida Degesys and her husband aren’t putting in their retirement savings account.

They believe they’ll eventually climb from debt and begin using their earnings to build assets rather than fill holes. But, like the roughly 37 million others in the U.S. saddled with $1 trillion in student debt, they may never catch up with wealthy peers who began life after college free from the burden.

The disparity, experts say, is contributing to the widening of the gap between rich and everyone else in the country.

“If you graduate with a B.A. or doctorate and you get the same job at the same place, you make the same amount of money,” said William Elliott III, director of the Assets and Education Initiative at the University of Kansas. “But that money will actually mean less to you in the sense of accumulating assets in the long term.”

Graduates who can immediately begin building equity in housing or stocks and bonds get more time to see their investments grow, while indebted graduates spend years paying principal and interest on loans. The standard student loan repayment schedule is 10 years but can be much longer.

The median 2009 net worth for a household without outstanding student debt was $117,700, nearly three times the $42,800 worth in a household with outstanding student debt, according to a report co-written by Elliott last November.

About 40 percent of households led by someone 35 or younger have student loan debt, a 2012 Pew Research Center analysis of government data found.

Allen Aston is one of the lucky ones, having landed a full academic and financial-need scholarship at Ohio State University. The 22-year-old software engineer from Columbus estimates it let him avoid about $100,000 in debt.

Without loans to repay, Aston is already contributing 6 percent of his salary to a retirement fund that is matched in part by his employer and doesn’t have the same financial concerns his friends do.

“I’m making the same money as them, but they have student loans they’re paying back that I don’t. So, it definitely seems noticeable,” he said.

At the other end of the spectrum is Zbylut, an accountant-turned-attorney in Glendale, Calif. He’s been chipping away at nearly $160,000 in student debt since graduating in 2005 from law school at Loyola University in Chicago. Now 48, the tax attorney estimates he could have $150,000 to $200,000 in a 401(k) had the money he’s paid toward loans gone there.

“I’m sitting here in traffic. I’ve got a Mercedes behind me and an Audi in front of me and I’m thinking, ‘What did they do that I didn’t do?'” Zbylut said by cellphone from his Chevrolet. He’s been turned down twice for the type of mortgage he needs to buy a home big enough for himself, the fiancee he would have married already if not for his debts and her 10-year-old son.

“I have more education and more degrees than my father, as does she than her parents, and yet our parents are better off than we are. What’s wrong with this picture?” he said.

Student debt is the only kind of household debt that rose through the Great Recession and now totals more than either credit card or auto loan debt, according to the Federal Reserve Bank of New York. Both the number of borrowers and amount borrowed ballooned by 70 percent from 2004 to 2012.

Of the nearly 20 million Americans who attend college each year, about 12 million borrow, according to the Almanac of Higher Education. Estimates show that the average four-year graduate accumulates $26,000 to $29,000 in loans, and some leave college with six figures worth of debt.

The increases have been driven in part by rising tuition, resulting from reduced state funding and costlier campus facilities and amenities. Compounding the problem has been a trend toward merit-based, rather than need-based, grants as institutions seek to attract the higher-achieving students who will boost their standings.

“Because there’s a strong correlation in this country between things like SAT scores or ACT scores and wealth or income, the (grant) money ends up going disproportionately to students from wealthier families” who tend to perform better on those tests, said Donald Heller, dean of the Michigan State University College of Education.

Those factors, along with stagnating family incomes and declining savings, have made student loans a much bigger part of funding higher education, Elliott said.

Harvard Business School’s Michael Norton wonders whether greater public awareness of the widening wealth gap in the United States would hasten policy change. Norton conducted a 2011 survey that found that people tend to think wealth is more equally distributed than it is.

But with elected officials from Democratic President Barack Obama on down now talking about the wealth gap as an urgent public problem, a more complete picture seems to be emerging, he said.

“Both parties are now saying, perhaps inequality has gotten to the point where it’s not fair when people don’t have a chance to rise, and we need to do something about it,” Norton said.

Targeting the soaring cost of higher education, Obama in August proposed the most sweeping changes to the federal student aid program in decades. His plan would link federal money to new college ratings and reward schools if they help low-income students, keep costs low and have large numbers of students earn degrees.

Lawmakers in Congress also are debating how to address the issue, including proposals to allow graduates with high-interest loans to refinance at lower rates.

The American Medical Student Association supports expanding the National Health Services Corps, which provides loan forgiveness in exchange for service in underserved areas.

Nida Degesys, AMSA’s president, graduated in May 2013 from Northeast Ohio Medical University with about $180,000 in loans. The amount has already swelled with interest to about $220,000.

“There were times where this would make me stay up at night,” Degesys said. “The principal alone is a problem, but the interest is staggering.”

Yet, as costly as medical school was, Degesys sees it as an investment in herself and her career, one she thinks will pay off with a higher earning potential.

College degrees can pay off. College graduates ages 25 to 32 working full time earn $45,500, about $17,500 more than their peers with just a high school diploma, according to a Pew Research Center analysis of census data.

Elliott says the country needs to re-think college financing options to bring debt down and graduation rates up.

“We can’t,” he said, “let debt hinder a whole generation of people from beginning to accumulate wealth soon after graduating college.”


Democratic President Barack Obama and lawmakers in Congress are debating how to address the issue of rising student loan debt, something experts say is contributing to the widening between the rich and everyone else. Some of the proposals:

Obama has proposed extending the “pay-as-you-earn” repayment plan to all student borrowers. The program limits student loan payments based on income but is currently only available to borrowers who took out loans after October 2007.

U.S. Sen. Elizabeth Warren, D-Mass., has proposed allowing people with high-interest student loans to refinance at today’s 3.86 percent rate and would pay for it by raising taxes on the wealthiest Americans.

U.S. Sen. Kirsten Gillibrand, D-N.Y., introduced the Federal Student Loan Refinancing Act in May to allow borrowers that received loans under the Direct Loan or Federal Family Education Loan program after July 1, 2006, to consolidate them into one with an interest rate of 4 percent or less. Instead of paying more than $47,600 over the life of a 20-year, $26,000 loan, the borrower would pay $37,800.

U.S. Rep. Frederica Wilson, D-Fla., introduced the Student Loan Borrowers’ Bill of Rights Act, which would remove educational loans from the list of debts that can’t be discharged in bankruptcy.

The Student Right to Know Before You Go Act of 2013, with Republican and Democratic sponsors, require colleges to report data to offer students cost-benefit analyses comparing how much they can expect to earn in a particular field with how much they will owe after earning a degree in a given subject.

U.S. Sen. Marco Rubio, R-Fla., has called for “student investment plans.” Private investment firms would cover tuition costs that could be repaid later as a fixed percentage of a graduate’s income for a set number of years, regardless of whether that amount covers the total debt. Rubio said that he still owed more than $100,000 in student loans when he became a senator in 2011. His office said he repaid his student loans in December 2012 with proceeds from his autobiography.

Source: Associated Press

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