How to Compare Student Loan Lenders & Find the Best Option for You
While a college degree is undoubtedly a smart investment, paying for school isn’t as easy as it sounds. Tuition prices may be fair and even affordable, but that doesn’t mean you have the cash on hand.
To come up with the money they need, most students use a combination of financial aid, including student loans. With a private student loan, you can borrow money for tuition, supplies, and room and board, while promising to repay your loans during school and after you graduate.
But, which student loan should you choose? Thanks to the bounty of student loan lenders and types of loans available, you have more choices now than ever before. Especially among private student loan lenders, you now have a myriad of high-quality options to consider with low interest rates and favorable terms.
Before you compare student loans, it helps to know what to look for.
Researching Student Loan Lenders: Key Factors to Consider
The interest rate on your student loans will determine how much interest you pay throughout the life of your loan. The higher your interest rate, the more interest you’ll pay over time. Likewise, a lower interest rate can help you save money over time.
Student loans come with two different types of interest rates – fixed interest rates and variable rates. While fixed rate loans offer the same fixed rate throughout the life of your student loan, variable rate loans offer a lower teaser rate that resets over time. Usually, variable interest rates are usually tied to the prime rate or to the London Interbank Offered Rate (LIBOR).
Because variable rates are hard to predict over the long haul, variable rate student loans are best for students who plan to pay off their student loans quickly, usually within five years. With a shorter repayment timeline, students can benefit from the lower introductory interest rate that variable rate loans offer.
Fixed rate loans, on the other hand, are best for students who need more time to repay their loan balance. That’s because students who choose fixed rate student loans can lock in an interest rate and low payment that will never budge over time. While they won’t benefit from a lower teaser rate at the beginning of repayment, students who choose this option never have to worry about market influences causing their payment to surge.
Another important factor to consider when you compare student loans is the repayment timeline. While many public and private student loan lenders offer a standard, ten-year repayment plan, it may be possible to ask for more time. Some loans even let you repay the balance for up to 25 years in certain circumstances.
When you compare student loans, make sure you’re comfortable with the proposed repayment terms. While a shorter repayment timeline makes you debt-free sooner, you’ll also pay a higher monthly payment. Student loans with a longer repayment timeline offer the opposite – smaller monthly payments but more time to repay your loans. Also keep in mind that, with a longer repayment timeline, you’ll pay more interest on your loans.
Lastly, it’s important to remember that some student loans may require payments while you’re still in school. While making payments on your loan during school can help you save money and reduce the amount you owe once you graduate, those payments can be a source of financial pressure. Also, keep in mind that some private loans require no payments until you graduate, or a deferral option that lets you skip payments until a predetermined date.
As you compare student loans, make sure you consider the proposed repayment timeline, how it will affect your monthly payment, and when your first payment is due. By selecting a student loan with a repayment timeline you can handle, you can set yourself up for success.
How Much Can You Borrow?
The federal government sets limits on the amount of federal student loans you can take out. As of 2017, dependent undergraduate students can take out an aggregated maximum of $31,000 in student loans with $23,000 subsidized. Independent undergraduate students, on the other hand, can borrow up to $57,500 with up to $23,000 subsidized. For graduate and professional students, borrowing limits are set at $138,500, and no more than $65,500 can be subsidized.
When it comes to private student loans, most have aggregate loan limits of $75,000 to $120,000 for undergraduate students, along with even higher limits for graduate and professional students. These higher limits offer more flexibility for students who choose more expensive schools or plan to stay in college longer.
Before you decide on a student loan, it’s crucial to figure out how much you need to borrow. Start by calculating tuition prices, plus estimated costs for room and board. Add it all up, then subtract any cash you have saved for school along with scholarships or financial aid. Taking these steps can help dictate how much to borrow and which type of student loan you need.
Do You Need a Cosigner?
While it’s possible to qualify for the student loans you need without any help, a cosigner may be needed if you lack sufficient credit or income to qualify on your own. When you use a cosigner for your student loans, they are attaching their name and their credit to your loan while promising to repay if you default.
As you compare private loan lenders, make sure to study their income and credit requirements. If you do need a cosigner, you should consider parents and other relatives who may be willing to help. It’s also important to weight the risks, however. While your cosigner may not be on the hook for repayment if all goes well, you could jeopardize their credit and financial health if you default on your loans.
This is part of the reason certain protections, including the ability to release your cosigner, need to be in place. While you compare private student loans, it’s crucial to note whether lenders you’re considering offer a cosigner release option. With a cosigner release option, you may be able to remove the cosigner from your loan if your credit becomes good enough to qualify on your own.
Other Perks & Benefits
So far, we’ve talked about the major components of your loan – your interest rate and repayment timeline, along with how much you can borrow and whether a cosigner is required. But, what about the perks? Believe it or not, private student loan lenders can offer some surprising benefits to students and graduates who meet certain benchmarks.
As you compare private student loan lenders, watch out for these perks:
- Financial Help – Some private student loan lenders let you temporarily postpone payments if you run into financial difficulties.
- Discounts – Some lenders offer interest rate deductions if you meet specific requirements, such as setting your loans up on auto-pay. Other private student loan lenders offer discounted rates for good grades during school.
- No upfront fees – While fees vary, many private lenders offer special deals with no origination fee, no application fee, and no disbursement fee.
- Counseling – Some private lenders offer post-graduation advising on career prospects, loan repayment, and other issues commonly faced by new graduates.
- Social Promise – Certain private lenders use their platform and profits to help struggling students finish school. For example, one private lender funds an education for a student abroad for every U.S.-based loan they fund.
While you may not be thrilled with the idea of borrowing money for school, the growing costs of higher education have made student loans a fact of life. Fortunately, you can protect yourself and make repayment easier by learning all you can about private loans, then selecting the best loan for your needs.
Ideally, you’ll want to borrow as little as possible, secure the lowest interest rate you can find, and agree on a monthly payment you can afford. With the ideal loan in place, you can focus on success in college without losing sleep over your financial future.