Most students borrow money to attend school. In fact, a whopping 71% of students graduated with student debt in 2012.
If you’re planning on borrowing to go to college, it’s important to understand the loans you’re taking out. Making the right choice when it comes to financing your education could save you money and make repayment less stressful.
To find the right loans for you, look into all your options. Comparing student loan companies might seem daunting, but there are a few key criteria to consider before deciding which loans are right for you.
Federal student loans vs. private student loans
First and foremost, you should look to federal student loans to finance your education. Federal loans can be a better option for students because:
- The government pays interest on subsidized federal loans while you’re still in school.
- Federal loans have fixed, not variable, interest rates. So your monthly payments won’t change.
- Federal student loans offer income-driven repayment plans. That means you can keep your payments affordable.
- Some students might be eligible for federal loan forgiveness after 10 years of working in qualifying public service jobs.
Thoroughly compare the differences between federal and private student loans before deciding which option is best for you.
Comparing private loans from different student loan companies
If you’ve borrowed all you can from federal loans, private student loans might be your second-best option to cover remaining educational costs.
If you’ll need to rely on private financing, compare these six key criteria to see which company offers you the best deal.
1. Interest rates
Private student loan companies offer a variety of interest rates. And most lenders let you choose between variable- and fixed-rate loans.
With variable-rate loans, your interest rate can change over time. That means your monthly payments can change. So if interest rates rise, you could end up paying more for your loan.
With fixed-rate loans, however, your rate remains the same over the life of the loan. Generally, the interest on a fixed-rate loan is higher than the initial rate offered on variable-rate loans.
For example, fixed rates on private student loans from Citizens Bank range from 5.25% - 11.99%. Fixed rates from College Ave range from 5.31% - 12.07%. Variable rates, on the other hand, range from 3.80% - 11.90% at Citizens Bank and 3.54% - 10.81% at College Ave.
While a low-interest loan is usually a better deal than a higher-rate loan, you should consider the whole picture, including the length of repayment and other costs associated with borrowing.
2. Loan repayment terms
Another important factor when comparing private student loan companies is term length. For example, College Ave offers eight-, 10-, 12-, and 15-year repayment terms.
A shorter repayment term means it’ll take you less time to repay your loan. That generally means you’ll pay less interest on a short-term loan compared to a longer-term loan. However, your monthly payments will be higher on a short-term loan because you’re making fewer of them.
You often need to decide between smaller monthly payments with a longer loan term or larger payments with a shorter term.
3. In-school repayment options
Paying loans while in school can help you save money on interest, but it’s not economically feasible for many students. Private lenders have different rules regarding whether loans need to be paid while in school.
Some of the common repayment options offered to enrolled students include:
- Full payments
- Interest-only payments
- Flat $25 monthly payments
- No payments
If there’s a particular repayment plan you’d prefer, make sure the private loan lender you’re considering offers it.
And be sure to understand the implications of each repayment option. If you don’t at least pay interest while in school, for example, your loan balance will grow.
4. Cosigner rules
Unless you have good credit and earn a solid income, you’ll likely need a cosigner to qualify for private student loans. If a parent or other trusted relative cosigns your loan, they’ll be equally responsible for the debt. That means if you miss a payment, your cosigner will be on the hook.
In this case, you might want to consider a student loan company that offers cosigner release. This option allows your cosigner to be taken off the loan after you’ve made a certain number of on-time payments.
For example, College Ave offers cosigner release after specific criteria are met, including 24 on-time payments and two years of earning an income that’s more than twice your outstanding balance.
If cosigner release is important to you, make sure the loan company you’re considering offers it.
However, there could be other ways to free a cosigner from a student loan. You could refinance the loan into just your name, for example. So, you might not want to rule out lenders that don’t offer cosigner release.
5. Loan fees
Many private student loan companies don’t charge origination fees or prepayment penalties. However, you should always double-check. These types of fees can substantially add to the cost of your loan.
6. Customer service
You’ll be working with your chosen student loan company for many years as you repay your debt. So, it makes sense to check out its reputation among other borrowers.
The Consumer Financial Protection Bureau (CFPB) maintains an online complaint database where you can read consumer complaints about student loan companies. The CFPB also periodically publishes reports highlighting problems consumers have had with servicers.
Reading about the experiences others have had with loan companies can help you make a more informed decision about where to borrow money.
Choosing the best student loan companies for your situation
By taking the time to research your options, you can compare student loan companies to find one that offers you the best deal for financing your education.
Start comparing loans as early as possible so you can find a loan servicer that’s right for you.
Need a student loan?Here are our top student loan lenders of 2018!
1 = Citizens Disclaimer.
2 = CollegeAve Autopay Disclaimer: All rates shown include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
* 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.
3 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
|3.54% - 12.07%2||Undergraduate, Graduate, and Parents||Visit CollegeAve|
|4.11% - 12.19%||Undergraduate and Graduate||Visit Ascent|
|4.00% - 11.85%*3||Undergraduate and Graduate||Visit SallieMae|
|2.93% - 9.67%||Undergraduate, Graduate, and Parents||Visit CommonBond|
|3.80% - 11.99%1||Undergraduate, Graduate, and Parents||Visit Citizens|
|4.53% - 9.69%||Undergraduate and Graduate||Visit LendKey|