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% – 12.19%. Fixed rates from College Ave range from 5.29% – 12.07%. Variable rates, on the other hand, range from 4.04% – 12.01% at Citizens Bank and 3.69% – 10.94% 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 Important Disclosures for CollegeAve.
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.
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) or Turnstile Capital Management, LLC (TCM), which are not affiliated entities. Certain restrictions and limitations may apply. 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. All loan products may not be available in certain jurisdictions. Other terms and conditions apply. Ascent is a federally registered trademark of 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
|3.69% – 10.94%1||Undergraduate, Graduate, and Parents||Visit CollegeAve|
|3.82% – 12.82%3||Undergraduate and Graduate||Visit Ascent|
|4.34% – 12.99%2||Undergraduate and Graduate||Visit Discover|
|4.12% – 10.98%*,4||Undergraduate and Graduate||Visit SallieMae|
|5.03% – 11.23%5||Undergraduate and Graduate||Visit PNC|
|3.88% – 12.88%6||Undergraduate and Graduate||Visit SunTrust|
|4.72% – 9.81%7||Undergraduate and Graduate||Visit LendKey|
|3.72% – 9.68%8||Undergraduate, Graduate, and Parents||Visit CommonBond|
|4.04% – 12.01%9||Undergraduate, Graduate, and Parents||Visit Citizens|