Seven out of ten college students now take out loans to fund their education. With the average debt rising to more than $29,000, getting the best deal is essential. The following tips can help undergraduates and grad students of any age shop for the best student loans.
1. Decide how much money is needed.
Loans are often the last resort after scholarship money, grants, 529 payments and parent contributions have been exhausted. Will the loan amount need to last for a single semester or for an entire year? How much will tuition, fees and textbooks cost? Keep in mind that the cost of attending college seems to skyrocket each year. Taking more classes or enrolling in technical courses can add hundreds and even thousands to the bill.
2. Look at application requirements.
Some lenders focus solely on undergraduates while others handle graduate students as well. Does the loan company require a co-signer? Will the company conduct a credit check? If so, what is the minimum credit score for a student loan?
3. Compare interest rates.
Lower rates typically equate to lower monthly payments and less money spent over the life of the loan. Getting a fixed-rate education loan means that the cost cannot go up even if interest rates rise. On the other hand, the payment amount on variable-rate loans can decrease or increase under the right circumstances. Most lenders set a maximum interest rate, so the amount charged cannot go above this level.
4. Investigate the total cost of the loan.
Some lenders advertise low interest rates for student loans but then tack on higher fees. Professionals estimate that charging three to four percent in fees is about the same as raising the loan rate by one percent. Some common education loan fees include an origination fee for processing, a disbursement fee for paying to a university or to a student, a deferment fee for postponing a loan payment and insurance fee for offsetting the risk of default. At the same time, a lender may offer discounts for automatic payment, receiving statements electronically or making a certain number of payments on time.
5. Compare repayment options.
Does the lender require payments immediately after granting the loan, or will payments be deferred until after graduation? Does the student loan company offer a choice of payment plans? Examples include flat payments over a certain number of years, interest-only plans for low payments while in school or graduated plans with payments that increase as income goes up. Can repayment be postponed for someone who goes back to college or has a financial crisis? What is the maximum amount of time someone can take to repay the debt?
6. Check if the loan can be refinanced or consolidated.
In most cases, private alternative loans cannot be lumped together with federal student loans. Because only a limited number of lenders offer private education loans, consolidating loans from various banks into a single monthly payment can be challenging.
7. Look at borrowing limits.
Has the company set an annual or lifetime cap? These limits are especially important for undergrads planning to get a master’s degree or doctorate. Can the loan proceeds be used for education-related expenses like housing, or is the borrower limited to tuition only?
8. Submit applications to multiple lenders.
The best way to compare student loans is to shop around. By getting back several loan offers, a borrower has the chance to compare contracts, check out customer service levels and see which lender is the best fit.