Paying for college is no joke. The average cost of one academic year in the US was close to $18,000 for public universities and upwards of $46,000 at private, nonprofit universities in 2018 according to the National Center for Education Statistics .
More than half to two-thirds of people who attend college take on debt—most often in the tens of thousands of dollars. According to the Federal Reserve, in 2017 the typical amount of outstanding education debt was between $20,000 to $25,000 . More recent figures place that debt closer to $30,000 , according to numerous studies.
It gets worse: Student loans are not typically discharged in bankruptcy cases. That means debt from young adult life will follow an individual, often for decades, until it’s paid. Scary statistics and facts aside, it boils down to finding the right lender.
The right lender is key, as federal student loans typically take upwards of 20 years to pay off . Finding a suitable lender that’s reputable is essential when entering a long financial relationship.
Student loans are often the first major debt a young adult signs their name to, so evaluating potential lenders is a good first step when considering a private student loan.
There are some general considerations to keep in mind when evaluating private student loan lenders. Keep in mind these are general considerations when deciding between private student loan providers and not an exhaustive list.
Each potential borrower will need to consider her or his own financial situation to help make an informed decision.
1. First Things First: Reputation Before Rate
Before even considering the interest rates, savvy students look for indicators that a loan company is legitimate. Bottom-of-the-barrel interest rates might seem attractive, but if the bargain comes at the price of doing business with a dubious company, potential borrowers may want to steer clear.
Several options are available for researching a lender’s reputation. The Better Business Bureau or local chamber of commerce are good first places to check.
Look up the name of the lender and the parent company, if there is one, to find any reviews that might be available. If nothing is found on these channels, a general search online often yields news stories or first-hand accounts pulled from multiple sources that can help paint a picture of how the lender treats customers.
Other ways to verify reputation and legitimacy are by checking any accreditations, endorsements by other credible entities, and backing by established institutions.
It’s also worth talking to recent grads and trusted colleagues. What lender do they use? What has their experience been? While anecdotal advice adds color, though, it shouldn’t be the bulk of research.
2. What Rates Are Offered?
Another factor to consider is a lender’s interest rate. The higher the interest rate, the more money the borrower will pay on top of the loan amount—it’s how the lender makes money. For example, private student loans can be fixed or variable and have a wide range of interest rates.
A loan with a variable interest rate—also known as a floating rate—changes interest rates over time. When and how the interest rate changes depends on the terms of the loan and will vary lender to lender. Typically, the rate is tied to a specific index and will impact monthly loan payment amounts.
A fixed-interest-rate loan carries an interest percentage that does not change over the life of the loan. The interest rate at the start of the loan stays the same month after month, year after year, until the loan is repaid.
Choosing Between Variable or Fixed Interest
Variable rate loans may seem attractive because the initial rates are often lower than fixed-rate loans. However, since rates will fluctuate, variable rate loans can be more costly in the long run, especially if a borrower has the loan for a lengthy period of time.
Borrowers who wish to lock in one rate and the same monthly payment each month are generally better served with fixed-rate loans. Because the interest rate doesn’t change, monthly payments will stay the same, which can help with budget planning and financial management.
3. What Are the Loan Terms?
Hand in hand with interest rates are loan terms. The term refers to the length of time a borrower has to repay the loan. In general, the longer the loan term, the more interest a borrower will pay.
Shorter term lengths usually have higher monthly payments than longer term loans, as the loan has to be repaid at an accelerated schedule. Some lenders may offer flexible repayment options. Other lenders may have fixed term lengths and monthly payments.
When deciding between lenders, verifying available term lengths and options can help borrowers select a lender that offers terms that fit their budget and repayment timeline.
4. Have You Exhausted Federal Loan Options?
A quick check before applying for private student loans: Did you take advantage of any available federal student loans? They offer several benefits not found with private student loans. For starters, federal student loan interest rates are often lower than private student loan rates.
Another benefit is the variety of repayment programs that federal student loan borrowers may qualify for. For borrowers who work in public service or other qualified professions, there are loan forgiveness programs to consider. Income-driven repayment plans may be available to qualified borrowers in an effort to make loan payments more manageable.
Also, loan deferment and forbearance options may be available as a temporary relief if a borrower is having trouble making payments. For these reasons, borrowers are encouraged to consider federal student loan options before opting for a private student loan.
5. What Fees Are Associated with the Loan?
No one likes additional fees, especially when they’re associated with a loan. Unfortunately, lender fees are fairly common. Reading the fine print and speaking with loan representatives to understand fees each lender charges is an important part of the search process.
Typical charges are application fees, late fees, insufficient fund fees, and origination fees. When comparing the total cost of a loan, including fees is an important financial consideration. Taking the time to get familiar with how the company makes its money may save you a headache in the long run.
6. What Happens if Your Financial Situation Changes?
Unpredictable circumstances happen all the time. In recent years, recessions, pandemics, and natural disasters count among the various catastrophes impacting people all over the world. Circumstances like these—along with many others—can put a dent in your finances.
For borrowers, a change such as a job loss might mean the difference between paying their student loan bill for the month—or not. Because financial circumstances are prone to change, a borrower may want to compare private student loan lenders.
How flexible are the lenders with monthly payments? Do steep late fees pile on if a borrower can’t make a monthly payment? What happens if a borrower needs to refinance or decrease monthly payments? These are all questions to consider and discuss with potential lenders.
Lenders that lack flexibility can mean the difference between thousands of extra dollars of debt if unforeseen circumstances change your finances and you’re unable to make your payments.
7. Does the Lender Offer any Incentives or Perks?
Once the serious stuff is considered, such as reputation, interest rates, term, and fees, there’s room to evaluate lenders on what else they can offer. Some lenders, like SoFi, offer career services and rate discounts.
Others may offer bundled banking so borrowers can have all financial services in one place. There also may be referral fees a borrower can earn for recommending the lender to others.
While the perk factor probably shouldn’t carry the heaviest weight in your comparison, it still might be worthwhile to evaluate.
Once research and comparison wraps up, you may be ready to apply for a loan to pay for your education. With SoFi private student loans, undergrads and grad students can apply for a no-fee loan. That includes no application fee, no origination fees, no insufficient fund fees or late fees.
For further savings, SoFi also offers an interest rate deduction if you enroll in automated payments from your checking or savings account. SoFi has flexible repayment options and a simple, online application.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL MAY 1, 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.