When you need to take out a private student loan, it can be difficult to know which one is right for you. But if you focus on four primary areas recommended by the Federal Trade Commission (FTC), Consumer Financial Protection Bureau, and the Department of Education, narrowing down your choices will be easier. These include products, qualification criteria, expenses, and added features.
US News My Money offers tips on how to choose the best private student loan.
When you figure out which kind of student loan you need and the amount of money you need to borrow, research if the lender has any offers that align with your needs. You can assess their terms and conditions to help decide if you should apply. Also, check if the lender provides loans for your degree.
Do your homework to determine if there are specific eligibility requirements you must meet to qualify for a loan, such as citizenship, enrollment status, age, and income. Additionally, lenders will also perform a credit check to determine your creditworthiness.
If you have no credit or bad credit, consider asking someone you trust to co-sign on the loan for you. Keep in mind that if you miss a payment, the burden will fall onto the co-signer, whose credit may take a hit. It’s important that you both understand the responsibilities associated with co-signing.
A wide range of factors determines the end cost of a private student loan, such as interest rates, the kind of interest, fees, and more. Depending on the lender, you may get preapproved for a loan, which offers a better idea of your projected interest rate but doesn’t affect your credit. If you have this option, take advantage of it.
Additionally, keep in mind that many lenders have origination fees. Though not everyone has these charges, it’s one more important reason why you should read the fine print. Other standard fees you should look for include application and late fees.
Another factor to consider is interest capitalization. While it isn’t an extra charge, it’s something that happens when the lender aggregates the outstanding interest on top of the loan’s principal. How much and when the lender capitalizes your interest will affect the overall cost of your private student loan.
Depending on the lender, you may not have to make payments on your loan while enrolled in school or for the first few months after you graduate. During this period, interest accumulates, and when it capitalizes, so will your principal. This leads to higher monthly interest payments. Capitalization can also occur when you defer your loans.
One advantage of private student loans is that you don’t need to worry about prepayment penalties.
Just like any loan, the terms of your student can differ broadly. Look for one with features that can improve the repayment process and reduce your overall interest payments. Certain benefits could also guide you toward the best lender for you.
As you compare offers, consider these common features:
- Autopay: Enrolling in autopay may make you eligible for a discount (up to 0.50%) off your interest rate, though it may not start until you begin to pay your interest and principal payments.
- Deferment: When you’re in school, worrying about your student loans should be the last thing on your mind. Having a grace period while enrolled in college can take away some of the stress of having a loan. A loan with deferment options means you don’t need to make payments until you graduate.
- Financial hardship deferment: These let you defer your loan if you return to school, enlist, or can no longer afford monthly payments due to a job loss or other approved reason
- Early repayment: If you can afford to make full or partial loan payments each month, you should. This lets you pay just the interest, the whole payment, or a set amount, reducing your principal before graduation.
- Co-signer release: If you demonstrate to the lender that you can pay for the loan by making timely payments, they may remove your co-singer from the loan.
You should also check if the loan comes with other chances to save, such as lower rates for existing customers.
- DeNicola, Louis. “Best Private Student Loans of 2020.” U.S. News & World Report, U.S. News & World Report, 1 Oct. 2020, loans.usnews.com/student-loans#how-can-you-choose-the-best-private-student-loan.