6 Factors to Consider When Comparing Student Loan Companies

 March 30, 2021
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Private Student Loan rates starting at 0.99% APR

0.99% to 11.98% 1
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1.13% to 11.23% 2
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0.99% to 11.44% 3
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  • Variable APR

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If you’re planning on borrowing student loans for college, it’s crucial to understand the difference between federal and private loans. And there are a lot of differences, from the typical interest rate for different student loans to their special benefits and credit requirements.

Most students should borrow federal loans before turning to private ones, due to their relatively low rates and flexible repayment options. But if you need additional funding, you might choose to borrow from a private lender. And here, there are also big differences, depending on which company you borrow from.

To help you with this very important decision, let’s discuss…

Choosing between federal student loans and 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.
  • The typical interest rate on student loans from the federal government are lower than ones you’ll get on a private student loan. For the 2020-2021 year, subsidized and unsubsidized Direct loans for undergraduates have an interest rate of just 2.75%.
  • Federal student loans offer flexible repayment options, including 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.

Choosing between different private student loans

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. Typical interest rates on student loans
2. Loan repayment terms
3. In-school repayment options
4. Cosigner rules
5. Loan fees
6. Customer service

1. Typical interest rates on student loans

There’s no typical interest rate for student loans when you borrow from a private lender, since private student loan companies offer a variety of 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 have a 4.18%11.70%range. Fixed rates from College Ave run at 2.99% – 12.99%. Variable rates, on the other hand, are 1.16%11.02% at Citizens Bank and 0.99% – 11.98% 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 repayment terms of 8, 10, 15 years.

A shorter repayment term means it will 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 until you graduate and your grace period ends

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.

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.

Note that federal student loans do come with an origination fee.

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

Take the time to research interest rates on student loans and other factors. You can compare a wide variety of different lenders on our private student loan marketplace page and elsewhere to find one that offers you the best deal for financing your education.

Start shopping for loans as early as possible so you can find a lender that’s right for you without getting rushed by tuition payment deadlines.

Rebecca Safier contributed to this report.

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