Americans love to shop. After all, we made The Price is Right the longest running TV game show.
But when it comes to shopping for student loans - a complex product with hundreds of lenders to choose from - we'd rather have someone else do the legwork. Now, we've learned, that can be a problem.
Colleges for years have compiled lists of recommended lenders to help families navigate through a maze of options. An investigation by the New York attorney general's office, though, uncovered chummy financial relationships between some financial aid officers and lenders promoted on the school's list. Suddenly, doubts popped up over whether such lists are compiled in students' best interests.
The upshot: You have to do some of the work yourself if you want to make sure you're getting a good deal.
"A lot of students and parents want the answer handed to them on a platter," says Mark Kantrowitz, publisher of FinAid.org, an online provider of student loan information. "They don't want to do the work themselves. Families need to realize it pays to shop around and there can be substantial difference in the cost of these loans."
Now is the time that parents and students seek loans for the next school year. A college's financial aid office remains a good source for information, but it shouldn't be your only resource.
Web sites have cropped up to make shopping for loans easier, and more are coming online as early as this month.
But as you prepare to shop, understand that these Web sites also might have financial ties to lenders. And already, you might be seeing more pitches directly from lenders, which might not make the waters clearer.
Devin Ellis, a 23-year-old graduate student who chairs the University System of Maryland's student council, says he might have seen one commercial a year on student loans before the scandal hit. "Now I see two or three every evening watching TV," he says.
"Families are getting targeted through direct marketing," says Zhanna Goltser, financial aid director at the College of Notre Dame of Maryland. "They are very confused over what product to choose. They know more about private loans than they know about federal loans."
Goltser says some families come in ready to finance college through private loans. She spends more time now educating parents on why federal loans for students and parents are a better deal.
If you must borrow for college, start with federal student loans. The interest rate is fixed, and Uncle Sam sometimes will pay the interest for you while you're in school.
After that, parents can take out a federal Parent Loan for Undergraduate Students to cover a shortfall for tuition, fees, books and living expenses. Financial aid directors say sometimes parents don't want to take out a PLUS loan. They may have too much debt of their own or feel that young adults should be responsible for college bills.
Kantrowitz says the 8.5 percent fixed rate on PLUS loans is a couple of percentage points below the typical variable rates now offered on private loans.
If that argument doesn't persuade parents to use a PLUS loan, students are left with private loans.
"The private loan market is still the Wild West," and comparison shopping is difficult, says Robert Shireman, executive director of the Project on Student Debt.
The interest rate you'll get on a private loan depends on your credit record. Young borrowers are more likely to secure a loan with favorable terms if they have a parent with a good credit history as a co-signer.
Parents might not like the idea of being held liable for the debt if their child defaults. But Goltser says that once the student makes two or three years of on-time payments, the co-signer can be released.
So, how do you find a lender for a federal or private loan? Here's how to narrow your search:
Start by looking at the college's preferred-lender list.
Yes, the lists were the subject of the New York investigation, but most schools compiled their lists based on terms and service to students, not financial kickbacks, experts say. Plus, colleges have been reviewing their lists to make sure they're taint-free. (For now, the Johns Hopkins University has withdrawn its list of lenders for parent and private loans. The university's director of student financial services resigned in May as part of the loan scandal, and Hopkins agreed to pay more than $1 million in a settlement with New York's attorney general's office.)
Look beyond the preferred-lender list.
FinAid posts a list of student loan lenders, although it doesn't make recommendations. It also offers a Loan Discount Analyzer that calculates the value of loan discounts to the borrower. Citibank advertises on the site.
You also can shop for lenders online also at sites like SimpleTuition.com and eStudentLoan.com.