How can one student decide which lender to choose when the “playing field” is so extensive? By following some simple and basic tips a student or prospective student can narrow down his or her choice for a student loan lender.
Basic Selection Tips
The first thing a student needs to know is the various types of lenders:
- Direct Federal Loan: Loans provided by the Federal Government. Through this selection a student will only be privy to federal loans.
- Federal Family Education Loan Program: Provides financial assistance through lenders such Sallie Mae and Nelnet. This option can present a more diverse selection. Federal loans are an option as well as private, and parent loan assistance.
- Retail Bank Assistance: Federal or private loan aid by means of a major bank.
Student and parent(s) are encouraged to ask questions and do the proper research to find out which avenue would be best for all parties involved. Some college and universities provide a preferred lender list to aid in the selection process. The student is free to select any financial option he or she chooses, but the preferred list can serve as a great benefit in the selection process.
Many lenders use an origination fee to process important financial documentation. Students are encouraged to find out how much the origination fee is, and how it can be paid. If a student has above average credit, it is possible to have the origination fee waived.
Lender Interest Rates
Federal loans have a set interest rate, so that number will never change from one to another. However, private loans tend to fluctuate. Many students are advised to select federal assistance simply due to the standard fixed interest rate. Once again, conduct the proper research and stay informed on the interest rate of a given loan.
Does the student have any “perks” coming his or her way? Find out and see! Many times a student can get an interest rate reduction (which can benefit the above information) after making several consistent on-time payments. These incentives can really help in the big picture when it comes time to pay back the financial aid that has been provided.
Many students straight out of high school have yet to establish solid credit, which is why a co-signor is necessary in many cases. It’s vital the co-signor have a solid credit history due to the positive effects it can have on the student or co-borrower.
By having a family member or close friend who has a strong credit standing be the loan co-signor, the student will have the benefit of obtaining a lower interest rate and future payments on his or her student loan will be convenient.
If the student used a co-signor but shows responsibility and has continued to make payments in a timely fashion, that individual can be released from the co-signor. This will allow the student to build his or her own credit and build for his or her financial future.