Preferred Lender List: What It Is and How to Use It
If you’re looking for a private student loan, it can be tough to know where to start. From banks to credit unions to online lenders, there are a variety of lenders offering student loans to college students, graduate students, and parents. One resource that can help you narrow down your options is your school’s preferred lender list, if it has one. A preferred lender list, or PLL, is a shortlist of private student loan lenders that your school has evaluated and recommends. While you’re not required to choose a lender from your school’s list, it can offer a useful starting point for comparing your options.
Key takeaways
- Some schools provide preferred lender lists (PLLs) to students, which contain their recommendations for private student loan lenders.
- Schools must be transparent about how they selected lenders and can’t accept gifts or other incentives for including a lender on the list.
- You’re not required to choose a lender from your school’s PLL, and it’s still worth shopping around to find your best offer.
- When you’re comparing private student loans, consider factors like interest rates, fees, repayment terms, cosigner policies, and hardship protections.
What is a preferred lender list?
A PLL is a list of private student loan lenders that some colleges and universities put together for their students. It gives you recommendations for lenders while providing details like interest rates, repayment terms, and eligibility requirements.
You’re not required to pick a lender from your school’s PLL. It’s simply an informational resource that you can use to research lenders. If you do choose a lender from the list, you can feel confident that it’s one your school has already vetted and considers reputable.
While PLLs aren’t available at every school, they’re becoming increasingly popular following the recent federal loan changes. These changes included the elimination of the Grad PLUS program and new borrowing limits on Direct loans for graduate students and Parent PLUS loans.
With these changes, more students and parents may be looking for a private student loan to cover tuition costs.
How do schools choose lenders for their lists?
Schools don’t just put random lenders on their preferred lender list; they evaluate multiple lenders and select the ones they believe will best serve their students. Some factors they may consider include interest rates, fees, repayment options, eligibility requirements, cosigner release policies, and protections like deferment and forbearance.
This evaluation process often starts when the school sends a Request for Information, or RFI, to lenders. Lenders fill out this questionnaire to provide details about their student loans and processes, which the school then reviews when deciding which companies to include.
There are federal rules that require transparency around the preferred lender list process. A school must:
- Disclose how it evaluated and selected lenders
- Explain why each lender was included
- Review and update its preferred lender list at least once a year
- Allow students to choose a lender that isn’t listed
- Maintain a code of conduct intended to prevent conflicts of interest
For example, a school can’t accept compensation or other incentives from a lender or participate in a revenue-sharing arrangement. They also must be transparent about how they put together the list and why they picked each lender.
These safeguards make a school’s private lender recommendations more trustworthy, but it doesn’t mean you can’t find a better offer elsewhere. It’s still worth shopping around with private lenders to find your best offer on a loan.
What to do if your school doesn’t provide a preferred lender list
Not every school provides a preferred lender list. If yours doesn’t, you could still ask your financial aid office if it has any resources for comparing loans or can share a historical list of private student loan companies that students have used.
You can also explore private student loans from banks, credit unions, and online lenders on your own. Many lenders let you prequalify for loans online, so you can get a preliminary sense of your rates and terms without dinging your credit.
Before you take out a private student loan, it’s generally wise to apply for scholarships and max out your eligibility for federal financial aid, including grants, work-study, and federal loans. Federal loans tend to be more accessible than private loans and offer more repayment options and borrower protections.
If you still have a gap in funding, a private student loan could cover it. Just be careful not to borrow more than you need, and avoid spending loan money on non-essentials.
What to consider before choosing a lender
So, what should you look for when picking a lender and private student loan? Here are the most important factors to review:
- Interest rate: Interest is the cost of borrowing money, and even a small difference can have a major impact on your borrowing costs. Look for a low rate to keep your loan costs down.
- Fees: Consider any fees that could make your loan more expensive, like application fees, origination fees, or late payment fees.
- Repayment term: Check out how long you have to pay back the loan, as your repayment term also directly impacts your monthly payments and borrowing costs. Terms vary among lenders but often span five to 15 or 20 years.
- In-school payment options: Find out if the lender requires in-school payments or gives you the option to make small monthly payments or interest-only payments while you’re in school. Although in-school payments usually aren’t required, you might choose to make them to cut down on interest charges.
- Grace period: Many private student loans offer a grace period of six months or longer after you graduate to give you time to search for a job. Some lenders have specialized graduate loans with longer grace periods.
- Eligibility requirements: Private lenders often have financial requirements, such as a minimum credit score, income, and debt-to-income ratio. You also usually have to be enrolled in an approved program or school. Some lenders want to see that you’re meeting your school’s standards for satisfactory academic progress.
- Cosigner requirements: Many students can’t meet credit and income requirements on their own, so they must apply with a cosigner to get approved. Some lenders may offer no-cosigner loans, but these sometimes come with higher interest rates.
- Cosigner release programs: You may have the option of removing your cosigner from the loan agreement after you’ve made a certain number of on-time payments or a specific period of time has elapsed. You may also have to pass a credit and income check.
- Hardship protections: While private student loans usually aren’t as flexible as federal student loans, some private lenders will let you modify or postpone payments if you experience financial difficulties, go back to school, or have another qualifying reason.
While finding a loan with the lowest costs of borrowing is a priority, don’t forget to compare other factors like cosigner release and hardship protections. That way, you can find an affordable loan that also offers some flexibility if you run into unexpected circumstances.
A preferred lender list is just a starting point
A preferred lender list can help make your private student loan search more manageable by directing you toward lenders your school has already evaluated. But it’s still worth shopping around to find your best rate and terms. Comparing offers from multiple lenders can help you find a private student loan that meets your needs at a reasonable cost.
