A Guide To Evaluating Student Loans

A Guide To Evaluating Student Loans

After you maximize grants, scholarships and other free financial aid, you may find you have remaining costs. If you need to borrow, compare federal and private student loans and choose the loans that best fit your needs.

When evaluating student loan options, we encourage you to carefully consider:

  • Fees
  • Interest rates
  • Monthly payment
  • Total loan cost

Fees

An origination fee is paid by the borrower to cover administrative fees for loan processing and may be added to your loan balance at each disbursement, on top of the money you need to borrow for school expenses. Some loans have origination fees while others do not, so it's important to find out and factor those into your total cost of borrowing.

Interest Rates

The interest rate for federal student loans is fixed. The interest rate is set on July 1 of every year and is the same for every borrower.

Private student loans are credit based, so the interest rate is not the same for every borrower. Students with better credit will likely receive a better interest rate. If you have no credit history or a low credit score, applying with a creditworthy cosigner may improve the likelihood for loan approval and getting a lower interest rate.

Monthly Payment

The length of your repayment period is one factor that affects your monthly payment. Other factors include:

  • Loan balance
  • Frequency of payments
  • Interest rate

Understanding your monthly expenses and how student loan payments fit into your budget will help determine if a shorter or longer repayment period best fit your needs.

Total Loan Cost

The number of monthly payments and the amount of your monthly payment will affect the overall cost of your loan.

A shorter repayment period will reduce the overall cost of the loan, but will result in higher monthly payments, which may be difficult to manage. While federal student loans offer various repayment options (i.e., extended repayment and income-based repayment), those options may increase your total loan cost in comparison to the standard repayment plan.

To reduce the cost of borrowing, you can make additional payments without penalty.