How to find the best student loans (and get the lowest rates)
More than half of all young adults who attend college in the United States take on at least some debt when completing their education, according to the Federal Reserve. Student loans are the most common loan type, owed by 93 percent of borrowers who have an outstanding loan balance. Student loans can be used for tuition, room and board and other costs of attending school — but they can become a burden to repay after graduation.
If you're considering borrowing for school, there are a few key factors to consider. You'll always want to compare financial aid offers when selecting a college so you don't need to take on more debt than necessary. You should also exhaust eligibility for federal loans before borrowing from any private lenders as federal loans offer better protections, more flexible repayment plans, and options for loan forgiveness that aren't available with private student loans.
Because federal aid often doesn't cover the full cost of tuition, many borrowers need private loans to supplement what they borrow from the Department of Education. If that's your situation, Credible makes it easy to compare private student lenders and shop for loan offers. Visit Credible today to check rates and terms without affecting your credit score.
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When you shop for your private student loans using tools like Credible, make sure you take these three key factors into account.
1. The interest rate and loan fees
Interest is the cost of borrowing, paid as a percentage of your principal balance. Fees could include origination fees, application fees, late payments and prepayment penalties.
While federal student loans have low fixed interest rates that are the same for every borrower regardless of credit score or income, private lenders work differently. Rates can vary from one lender to the next and lenders often offer a choice of fixed or variable rate loans. Use Credible's interactive table to find a rate that fits your budget.
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Private lenders offer a range of rates for their loans with only well-qualified borrowers getting the lowest rates. Fees can also vary, with most private student loan lenders charging no origination fees or prepayment penalties. Some impose late payment penalties while others don't.
You can use an online student loan calculator to see how different interest rates affect the amount you pay each month for your loan. The cheaper the rate and the lower the fees, the lower your monthly payment and the more affordable total debt payoff will be.
2. Loan repayment options
Interest rates aren't the only thing that affects monthly payments and total loan repayment costs — the loan repayment term does too. A loan with a longer payoff period means that your monthly payments will be lower but the total costs of paying off debt will be higher since you won't pay down your principal as fast and will pay interest longer.
Private loan lenders typically offer repayment periods ranging anywhere from five years to 20 years so you'll want to make sure that the lender you consider offers a payment period that works for you. You'll also want to see what the lender's policy is for making payments while in school. Most allow you to choose from interest-only payments, flat fee payments, or deferred payments. And many have a grace period before repayment begins after graduation, so you'll want to see how long that time is in case you can't start paying your debt right away.
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Finally, check the lender's policy for putting loans into forbearance if you need to. Private lenders don't offer as many options for deferment or forbearance as you'd have with federal student loans, but it's a good idea to find a lender that allows you to take a break from payments if you face financial hardship. Although interest will continue to accrue so forbearance makes payoff more expensive, having the option available is important to avoid potentially defaulting on loans if you lose your job.
3. Qualifying requirements and rules for cosigners
Unlike with federal student loans, would-be borrowers have to meet qualifying criteria to get approved for a private student loan. If you don't have good credit and enough income to pay off your loan, you may not be approved or you may get offered a loan, but at a very high rate.
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Many students need cosigners to help them qualify for student loans because they can't meet lender requirements on their own. If you need a cosigner, see whether the lender offers co-signer release, which would allow the cosigner to be removed from responsibility for repayment after a certain number of on-time payments. Some student loan lenders allow cosigner release after just 12 on-time payments while others don't allow it at all.
Compare student loan options today
Some private student loan options are much better than others, so it's always important to compare different lenders before applying to borrow for your education. The good news? Now is a good time to borrow as student loan interest rates have plunged to record lows amid the coronavirus crisis. If you've exhausted eligibility for federal student loans and still need more money for school, visit Credible today to find out if there's a private student loan that's right for you.