Subprime student loans next new thing.

It’s a great name for a lender, I suppose, “MyRichUncle” (owned by MRU holdings). The Wall Street Journal reports that these people plan to offer student loans to students who have relatively poor credit ratings and cannot find a co-signer.

They plan to offer loans at 11-12% interest, to students whom they will rate according to factors like grades, schools attended, future occupation and academic and work history.

Federal loan programs account for most student lending, and the rates are much lower, ranging from 6.8% (Stafford) to 8.5% for PLUS loans Private lending accounts for about 18% of higher education borrowing, and is growing rapidly. Private lenders generally charge variable rates (currently in the high seven percent raneg), but they are usually more flexible.

So, with all these cheaper options, why pay 12%, you might ask? Because you have no better choice. If your situation does not qualify you for one of the lower priced loans, you may have no better choice than “My RichUncle” and apparenly many students fall into this category. The College Board says that as many as one quarter of all students are borrowing on their credit cards to help finance their educations!

Most credit cards, and probably all of them that are held by students with poor credit records, charge much more than 12% interest (often in the mid-20’s). If that’s your only other option, “MyRichUncle” might look like a philanthropist!

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