If you plan to borrow a student loan to help pay for college or graduate school next fall, be prepared to do some legwork.
Earlier this year, New York Atty. Gen. Andrew Cuomo began investigating what he considers to be inappropriate ties between financial aid offices and lenders, reaching settlements with several firms and schools.
But despite ongoing concerns, you will be able to borrow money for school and from lenders with fair practices. You simply need to do a little more digging when selecting a lender.
-- Ask about "preferred lender" lists
Most financial aid packages include a list of preferred lenders, or lenders that the school has determined (in theory) will provide the best service for students. But much of Cuomo's investigation circles around these lists.
For example, lenders on the preferred list may have paid a school a percentage of the loan value they receive, and in some cases paid for trips for financial aid officers, according to the attorney general.
As you decide what lender to select, ask your financial aid office why it recommends certain lenders. Some lenders do make it onto lists for legitimate reasons, including good customer service, a short record of complaints from previous borrowers, and entrance and exit counseling.
-- Shop around
More important, don't limit your search to a school's preferred list.
Under federal law, you can select a lender of your choice, including one not on the preferred roster.
"A school is giving a list of general recommendations for all students," said Mark Kantrowitz, publisher of FinAid.org, an online resource of financial aid information. "You need to specialize that for your own circumstances."
While there isn't a single comprehensive resource for comparing lenders, you can cobble together a list on your own.
For Stafford loans, a type of federally guaranteed loan offered to both undergraduate and graduate students, start at www.finaid.org/loans/studentloans.phtml. There you'll find links to directories of major banks and non-profit lenders.
For private loans, you also can turn to Simpletuition.com. The site searches rates and other terms of private loans from 25 lenders currently, and by mid-month will expand its database to include nearly every major lender and Stafford loans.
Graduate students also can search for Graduate/Professional PLUS loans, another type of federally guaranteed loan, on the site.
-- Study rate offers
In comparing lenders, remember to maximize your federal student loan options first.
Federal loans offer the most flexible repayment terms, don't require a credit check and charge a maximum fixed interest rate: 6.8 percent for Stafford loans and 8.5 percent for Graduate/Professional PLUS loans.
Because the government controls federal loan terms, concentrate on rate and fee discounts being offered.
While lenders can't charge more than the maximum interest rate, they're free to charge less, said Raza Khan, co-founder and president of MyRichUncle, which began making student loans in 2005.
Traditionally, students have needed to make consecutive on-time payments for as long as 48 months to qualify for some rate discounts. But only a small percentage of students ever meet the requirement.
So the best deals are breaks that are immediate.
MyRichUncle, for example, lowers the interest rate on Stafford loans from 6.8 percent to 5.8 percent once you enter repayment. And whereas some lenders revoke discounts if you pay late one month, MyRichUncle only does so if you go into default, or don't make a payment for 270 days.
Most lenders also cut your rate from 0.25 percent to 0.50 percent if you make payments through automatic debit.-- Borrow only what you need
Minimizing the interest rate and fees you pay on a student loan will help reduce your debt after graduation. Another way to keep your debt load manageable is to borrow only what you need.
"Loan limits are not targets," said Kantrowitz of FinAid. "A good rule of thumb: Don't borrow more than you expect to make in your job. If you borrow your expected starting salary, you should be able to make the payments."
E-mail Carolyn Bigda at firstname.lastname@example.org.Copyright © 2015, Los Angeles Times