Preferred Lender Lists

With so many lenders to choose from, are you wondering which one will be the best for you?  How will you choose the “prefect” student loan lender for your educational needs?

Most colleges will publish lists of lenders they recommend, called Preferred Lender Lists. Often, there are many lists categorized by different types of loans.  Most preferred lists will include 5-10 lenders on each.  And, they may include all types of loans, including Stafford loans, PLUS loans, consolidation loans and private loans. Also, many lenders will do anything to get into the preferred list. Some of them may perform illegal activities so be wary.

How Are Lenders Chosen?

How does each college choose lenders to put on their “Preferred Lender List”?  Each college sets its own criteria for whom to put on their Preferred Lender Lists.  The process is usually subjective and isn’t always based on solely on cost.  Your college will probably take into account other factors like history of lending with the school, customer service, how quickly the lender solves problems and their counseling activities.  Your college will probably put a lender on their Preferred Lender List if they have 24/7 customer service because that’s important to students.  You want to be able to access assistance at any time and in any time zone.  Colleges also look for lenders who have easy-to-use online services.  When you have a problem with a loan that you cannot solve with your lender, you may turn to your school’s financial aid office.  To keep those calls low, lenders who have online services are much more appealing.

You Can Still Pick Any Lender

Don’t feel compelled to pick a lender just because they’re on your college’s Preferred Lender List.  Federal law requires colleges to certify federal education loans without regard to the borrower's choice of lender or the guarantee agency used by the lender.  So you can choose any lender you’d like.  Also, if you receive a form from your college that has information pre-printed on it, you don’t have to use that form or that particular lender.  You can always request a blank form so that you can pick your own lender.

Choosing a Lender: Shop Around

Your school’s preferred lender list is definitely a great starting point.  But don’t feel like you have to pick a lender from their list.  You can definitely shop around to find a lender to meet your needs.  Choosing a lender is very important.  Many have different discounts and it’s important to pick the one that’s right for you.

Here are a few tips for picking a lender as you shop around:

  • Federal loans are cheaper than private loans.  Federal loans have lower interest rates and fees, so be careful when choosing a private lender.  Always max out your federal loans first.
  • Pick the shortest loan term possible.  Even though a longer loan term will reduce your monthly payments, it will increase the total amount you have to pay back.
  • Apply for private student loans with a co-signer.  Private student loan interest rates are based on credit.  Having a co-signer may help you get an even better interest rate.
  • Some private loan interest rates and fees depend on the school you attend.  Some private lenders consider your college’s cohort default rate in addition to your credit score.  Higher default rates yield loans that are less profitable, and some lenders compensate for that by charging higher rates and fees for you.

So, using your school’s preferred lender list is definitely a great starting point.  But, it will pay off in the long run to do a little homework yourself to find the best lender.