The cost of college is higher than ever, and parents like you are playing a big part in footing the bill.
According to Sallie Mae’s How America Pays for College report, parents cover 23 percent of college costs with their income and savings. Plus, they cover an additional 8 percent with student loans.
If you’re looking for a private student loan, whether as the primary borrower or as a cosigner, it can be tough knowing which student loan company to choose.
Here are seven of the most important factors to consider, along with some recommendations for lenders that stand out from the pack.
1. Compare interest rates
Perhaps the most important factor when choosing a student loan company is finding the lowest interest rate. Each bank, credit union, and other type of lender sets its own rates. Interest rates can be fixed, meaning they stay the same, or variable, meaning they fluctuate, over the life of the loan.
Each lender offers a range of rates. Borrowers with strong credit will qualify for low rates, while those who are seen as riskier might get higher rates. SoFi, for example, offers variable rates from 2.47% – 6.99% and fixed rates from 3.90% – 7.98% on its student loans for parents.
Your interest rate determines how much you spend over the life of your loan on top of the initial amount you borrowed. The lower your interest rate, the less you’ll spend over the years. Even a small difference in interest rates can you save you a good deal of money.
For example, let’s say you took out $20,000 at a 7.00% fixed interest rate. On a 10-year repayment plan, you’d pay $7,866 in interest. But if you got a 5.00% interest rate instead, you’d only pay $5,456. Lowering your rate by just 2.00% could save you $2,410 over 10 years.
Fortunately, some student loan companies make it easy to compare interest rates. All you need to do is submit a quick pre-application form. After providing your name and a few other basic pieces of information, a lender will give you an instant rate quote.
Note that these rates aren’t locked in until you accept an offer and submit a full application. But rate quotes give you a way to easily compare lenders. Plus, these rate checks won’t affect your credit.
Before choosing a student loans company, compare a variety of offers. That way, you can get a low interest rate and make the costs of borrowing as low as possible.
2. Ask about interest rate discounts
The best student loan companies also offer ways to lower your interest rate with special discounts. Most lenders offer a 0.25 percent discount if you sign up for autopay. Instead of manually submitting a payment each month, you can let the lender make automatic withdrawals from your bank account.
Citizens Bank and SoFi, for example, discount your rate by 0.25 percent after you set up autopay. Plus, Citizens Bank offers an additional 0.25 percent reduction if you’re a banking customer. By setting up autopay and opening a checking account with Citizens Bank, you could lower your interest rate from, say, 5.00% to 4.50%.
Even a small discount can make a significant difference. A $30,000 loan at 5.00% would accrue $8,184 in interest over 10 years. But that same loan at 4.50% would accrue $7,310. That amounts to a savings of $874.
When searching for the top student loan companies, be on the lookout for special rate cuts, whether for autopay, holding a banking account, or another reason. If you can’t find this info online, call the lender’s customer service line to find out more.
3. Watch out for hidden fees
Just as private lenders set their own interest rates, they also differ when it comes to fee structures. Some charge an origination fee when they disburse a loan; others impose a fee for applying.
The best student loan companies charge neither. They might charge extra for mistakes like a bounced check, but they won’t penalize you for applying. Some lenders don’t even charge a fee when disbursing your loan.
As you start to search for a loan, you’ll find the top student loan companies are transparent and reasonable when it comes to fees.
4. Explore repayment terms
The top student loan companies offer a range of repayment terms. College Ave, for example, lets you choose terms between five and 12 years on its parent student loans. Citizens Bank lets you choose between a five- and 10-year term.
Let’s say you took out $20,000 with a 5.00% interest rate. On a five-year repayment plan, you’d pay $377 every month. Over 10 years, you’d have a monthly payment of $212. If you chose a 15-year term, your monthly payment would drop to $158.
Going with a long-term repayment plan could mean lower payments. However, you’ll be in debt for longer, meaning you could spend more on interest in the long run. Ultimately, you have to balance saving money on interest with a monthly payment you can afford.
Consider what works for your budget before choosing a term. Once you sign up, your repayment term is locked in.
5. Find flexible plans to pay back your loan
Federal Parent PLUS Loans typically beat private ones when it comes to repayment options. If your payments are too high, for instance, you can apply for the Graduated Repayment Plan or Extended Repayment Plan. If you consolidate, you can also get on the Income-Contingent Repayment Plan.
Private loans don’t usually have as many repayment options, but some lenders are flexible. Citizens Bank, for example, lets you make interest-only payments while your child is in school. College Ave allows you to set your own payment — plus interest — until your child graduates.
This kind of flexibility can be a lifesaver if you’re struggling to meet payments at first. Before you choose a student loans company, make sure to ask about your options in case of financial difficulty.
6. Research credit requirements
Besides shopping around for the best deal, you also want to find a student loan company that will approve you for a loan in the first place. To qualify for a private student loan, you have to meet the lender’s credit and income requirements.
Unfortunately, lenders typically don’t advertise the minimum credit score they require. But you can apply for a rate quote with multiple lenders to get a sense of whether you qualify.
7. Find out what the customer service is like
Although saving money is probably your top priority, good customer service is also worth considering. Before making your final choice, google some customer reviews to find out what other borrowers have to say about the student loan company.
You might also check with the Better Business Bureau (BBB) to see the company’s grade. College Ave, for instance, has an A-plus with the BBB, along with some glowing customer reviews.
Transparent, helpful customer service representatives can make a big difference. Make sure to search for any red flags before you select your student loan company.
Shop around for the best student loan companies
Although you want to avoid major student loan debt, a reasonable lender can help you support your child through college.
By researching student loan companies and comparing multiple offers, you can find the student loan that best meets your family’s needs.
Another option to consider is a federal Parent PLUS Loan. This loan has some federal protections, but it has a relatively high interest rate of 7.00% and an origination fee of 4.264 percent.
Consider the pros and cons of both loan types to find the right one for you.
Need a student loan?Here are our top student loan lenders of 2018!
|1 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or Nationwide Bank, 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 11/1/2018. Variable interest rates may increase after consummation.
2 Important Disclosures for Discover.
3 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.
* 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 PNC.
PNC Bank is one of the nation’s largest education loan providers. For over 40 years, PNC has been committed to helping students and their families make possible the adventure of college.
6 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. ©2018 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
7 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
8 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.
9 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.94% – 12.78%1||Undergraduate, Graduate, and Parents|
|4.04% – 13.04%3||Undergraduate and Graduate|
|4.34% – 12.99%2||Undergraduate and Graduate|
|4.12% – 10.98%*,4||Undergraduate and Graduate|
|5.03% – 11.23%5||Undergraduate and Graduate|
|4.12% – 13.13%6||Undergraduate and Graduate|
|4.92% – 10.01%7||Undergraduate and Graduate|
|3.72% – 9.68%8||Undergraduate, Graduate, and Parents|
|4.26% – 12.13%9||Undergraduate, Graduate, and Parents|