How to Compare Student Loans
After accepting grant and scholarship opportunities, you may be left to cover the remaining tuition cost with student loans. Before borrowing from a lender, make sure to compare your student loan options carefully based on the following factors.
How Do You Evaluate Student Loans?
To evaluate your student loan options, make sure to compare:
Lender Reputation
Interest Rate
Repayment Options
Cosigner Requirements
Fees
Unique Benefits
Lender Reputation
The lender you select will be the lender you work with for up to 25 years — if you don’t refinance, that is. This makes evaluating the lender’s reputation crucial, even more important than the loan’s interest rate.
Look to sites like Trustpilot and the Better Business Bureau for reviews of specific lenders before borrowing from them. And be mindful — while sites like Forbes and Bankrate are reputable companies, they may be incentivized to leave rave reviews of specific products in exchange for affiliate income.
Whenever you can, examine real customer reviews to get a clear understanding of the lender’s true reputation. Make note of how customers speak about the lender’s customer service, understanding of complex issues, and response time. These are three factors that are challenging to evaluate from the outside.
Interest Rate
A lower interest rate will keep your balance closer to what you initially borrowed, while a high interest rate could cause your debt total to grow rapidly. This makes comparing interest rates incredibly important.
First, decide whether a fixed or variable interest rate makes sense for you. Fixed interest rates will remain the same throughout the life of the loan, while variable interest rates will change based on market conditions.
Oftentimes, variable interest rates will start lower, which is enticing. But keep in mind that they may change, and they can grow to be much higher than they once were. If you aren’t comfortable with that fluctuation, it’s best to opt for a fixed interest rate.
Then, compare the rates side-by-side. Remember, lower is better.
Repayment Options
Some lenders offer a variety of repayment options, while others offer just a few. For example, you may have the option to make interest-only payments while in school, which can save you quite a bit of money in the long run. On the other hand, if you prefer to defer payments until after you graduate, you’d want to make sure the lender offers that option before you borrow from them.
Likewise, each lender will offer a different set of repayment terms, typically ranging from 5 to 25 years. Keep in mind that the longer the repayment term, the more interest you’ll pay. However, the shorter the repayment term, the higher your monthly payments will be.
How to Evaluate Repayment Options
If you’re not sure which repayment option is best for you, consider your expected post-graduate salary and the amount you plan to borrow. For example, let’s say you plan to attend an online coding bootcamp, costing around the average price of $13,584, which you plan to cover entirely with student loans.
With a 4.66% interest rate and a 10-year repayment term, you’d be expected to pay $142 per month toward your debt once you graduate. If you earned the average starting salary of a bootcamp graduate, or $75,000, that payment would likely be feasible.
Use a student loan calculator to create mock scenarios for repayment. That way, you’ll be able to see which repayment option makes the most sense for you based on your unique situation. Then, you can ensure the lender you choose has the option best suited for you.
Cosigner Requirements
If you’re unable to qualify for a loan on your own, or if you’d like to score a bit of an interest discount, you may consider adding a cosigner to your loan. Being a cosigner, though, is a big decision as it directly impacts their credit profile.
Because of this, some lenders will allow you to release your cosigner from the loan after a specific set of requirements is met. For most lenders, you’ll need to make on-time payments for around 12 to 24 months.
If you plan to have a cosigner on your loan, check in with them to make sure the lender you choose has the cosigner release options they prefer.
Fees
Some lenders tack on fees for things like loan origination, late payments, forbearance and deferment, and more. While a 1% origination fee may sound small, it could be a fairly hefty cost depending on how much you borrow. For example, a 1% fee on a $20,000 loan would cost you $200.
While facing fees isn’t a deal-breaker, it is something to be cautious of. Make sure you’re clear on all the fees a lender charges before agreeing to borrow with them.
Unique Benefits
Some lenders offer unique benefits such as cash rewards, interest rate reductions, and free career coaching. These elements are a great tie breaker in your evaluation if you’re stuck between two lenders. However, they shouldn’t be the primary factors you evaluate a lender on.
Which Lender is Best?
The best student loan lender will ultimately be the one that suits your needs best, which is something only you know. If you feel confident in the lender’s reputation and like the interest rate and repayment options they offer, they’re likely going to be a good fit for you.