How to Select a Lender for Your Student Loan

Arm Yourself with These Basic Questions

There are literally hundreds of different student loan lenders and retail banks to choose from. You can simplify your lender search by asking a few basic questions and comparing terms.

Colleges and universities may provide you with a preferred lender list--student loan providers they have worked well with in the past. However, you must be aware that the choice of lender is completely up to you and your college is not able, legally, to make recommendations based on business partnerships.

Types of student loan lenders:

What Types of Loans Does the Lender Offer?

The federal Direct Loan program comes from the federal government and you’ll only have the federal loans available. But student loan specialty providers such as Sallie Mae offer a diverse array of student loans including federal, private undergrad, federal and private graduate loans, parent loans and customized graduate loans for special fields of study. Find out exactly what types of loans your lender offers:

  • Does the lender provide federal student loans?
  • Does the lender provide private undergraduate loans? Private graduate loans?
  • Does the lender provide a student consolidation loan?

What Fees are Included with Loans?

Sometimes, lenders will charge what is called an origination fee, a common lender fee based on document processing and other administrative tasks. Find out what the origination fee is and how it’s paid. In some cases lenders may waive origination fees if you have stellar credit.

What’s the Interest Rate on Student Loans?

The interest rate is very important particularly for private loans. Federal loan interest rates are standard across the board so the lender has no flexibility there. If you are borrowing a private loan the interest rate, introductory and final is very important. Optimally you want a lender that will offer you a fixed interest rate as opposed to variable. Also ask if there is an interest rate cap as well as refinance options.

What Borrower Incentives if Any Does the Lender Offer?

Particularly for private student loans, many lenders offer borrower incentives, small perks designed to attract borrowers. Common incentives include an interest rate reduction after so many months of on-time payments and an interest rate reduction for opting to have your monthly payment taken directly out of your checking account. Now, these incentives are usually very small, but any reduction in your interest rate can make a sizable impact on how much you pay on your loan in the long run.

Can You Use a Cosigner or Co-Borrower?

Most college students right out of high school do not have an established line of credit. But private student loans are credit-based, which requires a check of the borrower’s credit history.

Make sure that if you have no credit or bad credit that your lender offers loans under the same terms with a co-signor or co-borrower. A cosigner should have very good credit, which can help to lower your interest rate and make your future payments more manageable.

Does the Lender Provide a Co-Signer Release?

Ideally if you must use a co-signor, you want a lender that offers a co-signor release incentive. Why? After you have made so many on-time consecutive loan repayments a lender will release your co-signor from the loan. This allows you to really build and improve your credit record.

Can You Manage Your Account Online?

Perhaps one of the most important questions is about account access. Look for a lender that offers 24/7 online account management. This means you can login to your account, make changes to account settings, see your current loan balance, and make payments, at the very least.

Shop carefully, don’t be shy about asking questions—ultimately the financial decision is all in your hands.