Managing Student Loans

Students who require private student loans to pay for the balance of their college education should never underestimate the potential savings to be made by shopping between lenders. The aggravating situation for students is that each lender will advertise the spread between their highest and lowest interest rates with the standard disclaimer that “the starting interest rate will be determined after you apply.” Thus until the student is approved for the loan the actual interest rate remains an unknown quantity.

Generally the interest rate offered will be determined by the students credit history, a co-signers credit history, and other undisclosed factors. Even students with their own credit history can secure a better rate if they still use a co-signer with excellent credit. Applying for just one loan will leave no options, so students should compare loan rates and lenders in advance of applying, taking any fees into consideration too.

Whilst applying for credit can impact negatively on your credit score, applying for a group of student loans during a fixed time period will count as one application in the eyes of FICO. Thus it makes sense for students to submit applications between 4 and 5 lenders, and then determine which offers the best rate. There is no obligation to accept a loan which is approved, and the more approvals there are the better chance of a lower interest rate.

Students are at liberty to do their own research on lenders and are not obliged to apply to a lender which is recommended by their college of choice. There will be different options to consider between lenders too, such as the term of the loan, any discounts offered and repayment options. Taking the loan over the shortest period will cost far less in interest repayments than extending the term. Many lenders are using a 15 year term repayment model to illustrate the amounts to be paid, but 10 years is a better option.

Probably three of the best known student loan lenders are Chase, Sallie Mae, and Wells Fargo. The Student Lending Analytics rates these in order with half a star to Chase, 2 to Sallie Mae and 3 to Wells Fargo. Chase charge fees of between 0-3% which will not be known until the loan is approved, and their range of interest rates runs to the highest.

Each of the three lenders offers a standard .25% interest rate reduction for paying by automated debits, but Wells Fargo also offers a reduction of 0.5% upon graduation. Credit Unions are relatively new to the world of student loans but a number of them are rated much higher by Student Lending Analytics. It is generally considered that only around 10% of applicants will be offered the lowest interest rate advertised by a lender.

There may appear to be little difference when applying for a loan between 1 or 2 % points difference in interest rates, but it can add up to thousands over the term of a student loan, particularly if deferments or extended terms are factored in. It is thus absolutely vital to spend the time and effort in shopping around between private student loan lenders and securing the most preferential interest rate available.

Source: Student Lending Analytics.