When it comes to student loans, bigger might be better for some borrowers, but for others, it could be worse.
To help gauge whether you should apply for student loans from banks that are larger, let’s review some pros and cons.
Pros of getting student loans from big banks
The differences between federal and private loans might already be obvious. But what about the distinctions between big-bank lenders and smaller peers that offer similar products?
Here are three ways in which getting a student loan from a big bank is generally better.
1. You can keep your finances under one roof
If you already bank with a large institution, you might have a friendly face to go to with questions. If you’re happy with the service you receive on your checking and savings accounts, it could make sense to take out a student loan with a company you know and trust.
There could also be financial rewards for holding multiple accounts at the same bank. SunTrust, for example, would reduce your loan interest rate by 0.25% when you make payments from a SunTrust bank account. Wells Fargo matches that promotion for its checking account and also offers a 0.50% rate discount when connected with your Wells Fargo investment portfolio.
You can typically open these bank accounts at any time before finalizing a loan to receive the lower rate.
Even Discover has a big bank-like benefit for in-school borrowers: a 1.00% cash-back reward for earning at least a 3.0 GPA every academic term.
2. Your servicer is less likely to change
If we learned anything from the Great Recession, it’s that “too big to fail” holds true. Large banks that received bailouts of taxpayer money included those that offer student loans. Wells Fargo ($25 billion), PNC ($7.6 billion), SunTrust ($3.5 billion), and Discover ($1.2 billion) were among them, according to CNNMoney.
That’s not to say larger banks are immune from going under, but they likely have a better chance of staying in business. What does that mean for borrowers? Service that won’t be interrupted.
Smaller lenders with shorter track records can’t give people the same comfort. Bloomberg reported in May, for example, that fintech lender Earnest was seeking to be bought by another company. It’s unclear what would happen to its customers if it were to sell.
If losing a servicer isn’t a hassle you want to deal with, put a plus-one in the column for big banks that offer student loans.
With that said, don’t discount attractive offers from other, lesser-known lenders. Just make sure to do the due diligence of reading the loan agreement. It should include language about how the loan would be affected if its servicer changes hands.
3. Your application is more likely to be accepted
Because big banks have been around longer and attract more customers, it shouldn’t be surprising that their standards can be lower. In their eyes, you might not need as high of a credit score or annual income to be approved for a loan.
The SunTrust Graduate Business School Loan, for example, doesn’t require applicants to show positive income — even if they don’t have a cosigner.
Finding the exact baseline for each bank is more complicated than it sounds. Lenders consider this proprietary information and aren’t always willing to share insight like how low of a credit score you can have and still be approved.
Other lenders might not set minimums at all. They consider a variety of factors, including your credit history and debt-to-income ratio. Go through the application process of banks that offer student loans to learn more.
But this pro comes with a potential con: Although an application might be more likely to get accepted at a big bank, having a more creditworthy application is a big deal. It helps you score more attractive loan rates and terms, no matter the size of the lender.
That’s important because interest rates awarded to very creditworthy borrowers can be as much as 5.00% to 6.00% lower than those offered to borrowers with the worst credit scores.
Cons of getting student loans from big banks
If there wasn’t a single downside to financing your education through a large financial institution, all these smaller, newer companies wouldn’t keep springing up, competing for your business.
Here are three ways that taking out a student loan from a big bank could work against you.
1. It could take longer
As is the case in many of these categories, comparing lenders is a numbers game. And although it varies lender to lender, big or small, big banks typically take longer to apply to. There’s more digital red tape to cut past.
For example, Discover boasts that, unlike conventional peers Wells Fargo and Sallie Mae, you can apply for a student loan in under 15 minutes on its site. Newer lenders like College Ave say three minutes is all you need.
With that said, the arrival of fintech companies and their increased competition has forced older banks to modernize their service. Mainstay PNC Bank and relative newbie CommonBond, for example, have very different reputations among tech-oriented millennials — but both outsource their loan application process to the same company, CampusDoor.
If you’re considering borrowing from a big bank, give their technology a spin. And if you’re looking at other lenders who proclaim their tech savviness, confirm their credentials by first looking under the hood.
2. Customer service might be slower
I opened up PNC Bank’s chat function and asked what the benefits are of borrowing from a larger-than-average lender. The customer service rep rattled off some perks, such as cosigner release, that other lenders offer. While the answer was unsatisfying, the service was not.
Unfortunately, PNC is fairly unique in this regard. Other big banks that offer student loans, such as Wells Fargo, have no chat function whatsoever. Instead, they ask you to dial into an automated phone system.
It’s fair to be skeptical and assume that big banks might generally be slower or less helpful in servicing a loan. After all, most offer so many other products (from banking to investing) that they can’t possibly be as reactive as a smaller lender that has just one type of product to manage.
No matter what lender you decide to go with, make sure to vet it properly by consulting existing customers’ reviews. Only they can be a true barometer of what to expect from your lender’s customer relations quality.
3. You might see higher rates and fewer term options
Some differences between small and large student loan lenders are easy to spot. Interest rates are an obvious place to start. They’re easy to compare among lenders and directly affect the cost of your loan.
Below are examples of variable APR rates for consolidating student loans for June 2017. The first two are from big banks; the last two aren’t.
- Wells Fargo: 4.24% to 9.24%
- Discover: 4.49% to 8.74%
- LendKey: 2.53% – 8.92%
- Education Loan Finance: 2.80% – 6.69%
This is an admittedly small sample size, so it’s important to compare specific rates among lenders while shopping around.
Be sure to juxtapose repayment term options, too. Wells Fargo’s plainly-titled Private Consolidation Loan offers a term choice between 15 and 20 years. In comparison, smaller lender SoFi offers its refinancing applicants five repayment term options, ranging from five to 20 years.
No matter a given lender’s size, ensure that each offers the kind of rates you deserve and the term you prefer.
Working with a big bank might be right for you — but bad for your neighbor. Before deciding on your lender, consider these pros and cons carefully. Better yet, use them as a starting point to come up with your own pros and cons list.
Need a student loan?Here are our top student loan lenders of 2019!
|1 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
2 Important Disclosures for College Ave.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 4/1/2019. Variable interest rates may increase after consummation.
3 Important Disclosures for Discover.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2019 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
6 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
7 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
8 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|4.24% – 13.24%1||Undergraduate and Graduate|
|4.07% – 11.32%2||Undergraduate, Graduate, and Parents|
|4.84% – 13.49%3||Undergraduate and Graduate|
|4.50% – 11.35%*,4||Undergraduate and Graduate|
|4.25% – 13.25%5||Undergraduate and Graduate|
|6.08% – 7.22%6||Undergraduate and Graduate|
|3.95% – 9.81%7||Undergraduate, Graduate, and Parents|
|4.45% – 12.42%8||Undergraduate, Graduate, and Parents|