Key Takeaways: Choosing the right student loan can impact your long-term financial outlook. It’s important to understand the differences between federal and private student loans first. Different types of student loans have different repayment options, interest rates, terms, and other factors that are important parts in choosing the right student loan for you.
First, consider any federal student loan options available to you. When it comes time to apply for a private student loan, don’t assume that all private student loans are the same. Benefits and interest rates can vary by lender, and some lenders offer more repayment flexibility than others.
Unsure how to choose a student loan and lender? Here are some key factors to consider in your decision.
Step 1: Start with Federal Loans
Before you explore private student loans, check your eligibility for federal loans. These typically offer borrower protections, fixed rates, and income-based repayment options that may not be available with private lenders. Only after exhausting federal options in the student’s name should you consider private student loans.
TIP: If you’re a graduate student or parent who was planning on taking out a Federal Direct PLUS loan in the future, read our guide that breaks down all of the changes happening with federal PLUS loans. Our guide can help you understand your options and how to fill the gap with private student loans.
Step 2: Compare Key Loan Features for Private Student Loans
When evaluating private student loan options, here are a few important features to assess:
1. Repayment Options
The repayment option is the way in which you are required to repay your loan. The biggest decision when it comes to choosing a student loan repayment option is whether you want to make payments while you’re in school or postpone until you graduate (also called deferment). Making in-school payments helps reduce the overall cost of the loan as you start paying down the loan sooner. Some lenders will give you more options than others. At College Ave, we offer four different repayment options on our undergraduate and graduate loans, so you can choose what works best for you.
2. Repayment Terms (or Repayment Term Length)
The repayment term is the amount of time you will take to repay the loan. Paying the loan back sooner will result in a lower overall total cost, but it will also result in larger monthly payments. Picking a longer loan term will help you manage your monthly payment, but the loan will be more expensive overall. The terms offered by lenders vary, and many lenders assign you a term without giving you the choice. At College Ave, we allow you to choose the term that works best for you and your budget.
3. Interest Rates: Fixed vs. Variable
There are two types of interest rates – fixed and variable – and most lenders offer both options. However, when it comes to the actual interest rates, don’t assume that all lender’s rates are the same. Some lenders can offer better pricing options depending on your credit. To see what your rates would be at College Ave before applying, check out our pre-qualification tool – it won’t affect your credit score.
At College Ave, we believe student loans should not be one-size-fits-all. Students and families need financing that’s tailored to their goals, their lifestyles, and their budgets – not those of their bank. You should consider what’s important to you and look for a lender that gives you the options you desire. We give you the choice so you can build a loan that meets your needs. You can use our student loan calculator to find your perfect fit before applying.
Step 3: Choosing the Right Lender
Choosing a private student loans lender can seem overwhelming but knowing what factors to consider can make the process easier. Selecting a lender isn’t just about the lowest rate – here are a few other criteria to evaluate:
- Interest rate competitiveness – How does the rate you were offered by one lender compare to others?
- Repayment flexibility – Does the lender offer different payment options to help customize your loan and monthly payment to fit your budget?
- Fees – Are there any origination fees, pre-payment penalties, or application fees?
- Lender reputation – Check the lender’s reviews online and ask your personal network if anyone has experience with a specific lender.
All lenders are not created equal and it’s important to know what to expect from your lender. Taking out a student loan is a big decision, and you’ll want to make sure that you choose the lender that’s right for you.
Step 4: Ask Yourself the Right Questions
Before taking out any loan, try answering questions specific to your financial situation to ensure you’re making the best decision for yourself.
- What is my monthly budget now? What do I anticipate my monthly budget will be after graduation?
- Can I afford to make payments while I’m in school?
- What terms and repayment options make the most sense given my future income prospects? Do I think I’ll be able to afford larger payments out of school to cut down on the overall payment duration? Or will I need smaller payments over a longer period time to fit my budget?
- Does this lender provide the flexibility I might need if my financial situation changes?
- Does this lender have good customer service and reviews?
In short – reflect on your current and prospective financial situation before taking out loans. When choosing a private student loan, focus on repayment structures, term length, interest rates and type, and flexibility. The right lender will offer transparent terms and let you tailor the loan to your needs.
