Figuring out how to fund your education is a bit like solving a puzzle. For many students, it comes down to making multiple pieces—such as family savings, federal grants, scholarships, and loans—work together. Once you’ve decided that private student loans would be a good contributor to your individual mix, you’ve got to identify the right loan for you. To do this, it’s worth taking the time to compare various loans, and to look beneath the surface, since the lowest advertised interest rates tend to be available to only the most creditworthy applicants. Here are some things to consider when researching private student loans.
Why choosing the right student loan matters
Differences in interest rates, fees, and terms can translate into meaningful differences in the debt you graduate with, your monthly payments, and the total amount you end up paying in interest. So it’s important to spend time doing a little investigating!
Comparing interest rates and loan fees
When you’re researching private student loan options, you’ll want to zero in on a few different things:
- Are interest rates fixed or variable? You’ll want to know which type of interest rate a lender offers. Fixed interest rates are set at the time you apply and are approved, and don’t change throughout the life of your loan. The interest on a variable rate loan may change periodically, depending on fluctuations in the interest rate index the rate is tied to.
- What are the interest rates? Lenders will often advertise their lowest possible interest rates. But interest rates may vary depending on your credit history and other factors. Keep in mind that you may get a better interest rate if you apply with a creditworthy cosigner.
- Are there fees, and if so, how much are they? Student loans may charge a fee just to apply (an application fee) or to get them (called an origination fee, which is usually a percentage of the total amount of the loan). Hopefully you won’t plan on making late payments, but look into late payment fees, as well as any other fees such as forbearance fees (what a lender charges you to put your loans on hold in the face of financial difficulties).
- What is the Annual Percentage Rate (APR)? This number is a percentage which represents the annualized cost of credit for a loan including finance charges (interest, fees, and other charges). The APR may be higher or lower than the interest rate. Knowing the APR makes it easier to compare one loan to another, since it takes into account things like fees, deferments, repayment periods, and how interest capitalizes.
Consider borrower benefits and loan discounts
Most loans come with money-saving benefits such as an interest rate reduction for automatic payments. Discover® Student Loans even offers cash rewards for good grades! Lenders may also have programs to help you out if you ever have trouble making your monthly payments. Carefully read the terms and conditions to ensure that you will qualify for the advertised benefits and make sure to retain them throughout the life of the loan.
Choose a lender with experienced and well-trained customer service representatives that will have answers to your questions no matter where you are in the student loan process. Lenders offer a variety of ways to contact them and different hours of operation during which you can talk to a live person, so look for a lender you can reach conveniently. You can investigate customer service ratings and reviews to help you compare.
The right private student loan for you
Choosing the right lender is an important decision, and one not to be taken lightly. Discover Student Loans offers variable and fixed rate options, cash rewards for good grades, and interest rate reductions for automatic payments—and zero fees (really!).