Compare Student Loan Options Before Borrowing

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With tuition bills for most colleges and universities due in August, students and their parents should compare their student loan options before they borrow.

Borrowing to pay part or all of an educational expense has become a necessity for most students. However, what many students don't know is that in most cases, they have a choice when it comes to selecting a lender for your Federal Stafford, PLUS and Private/Alternative education loans. Choosing the right lender and loan program can save you thousands of dollars.

Choosing a student loan may seem like a daunting task, but rest assured that services like's LoanFinder makes it easy to obtain a loan that’s right for them.

In order to get the best deal, students need to understand a number of loan costs and features. Here are some of the items they should consider:

Annual Percentage Rate - The APR is the annual cost of your loan including fees and other charges in addition to interest. APR's are calculated based on the amount of the loan, the amount of time it will take to repay the loan, the effect of fees or repayment incentives and the interest rate charged on the loan. Tip: APR is not the same as the interest rate. The interest rate is only one factor in calculating APR.

Repayment Incentives - Many loan programs will lower the cost of your loan when you take certain actions or repay your loan on time. For example, some lenders offer a 2% reduction on the interest rate charged for you loan if you make 48 consecutive on-time payments.

Loan Limits - Look at how much you may borrow under any given loan program. For Federal Stafford loans, the loan amounts are based on your year in school (Upperclassmen have higher limits than Freshmen and Sophomores). Private loans vary by lender. Make sure you look for a loan that covers your expenses, but be sure to borrow only what you need.

Pre-approval - Many lenders offer quick pre-approvals on PLUS and private loans. Sometimes a pre-approval notice from your lender can be used to clear the way for you to attend classes, even though you still have a balance on your bill. Contact your school to discuss your options.

Cosigner – Private loans are credit-based, which means students will need a credit-worthy cosigner in order to take the loan. Some loans will release the cosigner from liability after a certain number of payments.

Repayment Options – Many loans will let you defer payments (either principal only or principal and interest) while you are in school, but not all of them. Check the details before choosing a loan.

Interest Capitalization - If you choose to defer payments on your loan while you are in school, it's important to know when interest is capitalized. A loan whose interest is capitalized once at repayment is generally less expensive in the long run than a loan whose interest is capitalized monthly or quarterly while you’re in school.

Repayment Term - How long does the loan program allow for repayment? Ten years is the standard, but some loans let you string out payments over a longer horizon. Remember, the sooner you are able to repay your loan, the less you’ll pay overall.

How's Your Credit? - plus loans and private loan approvals are based on credit worthiness. Many private loans charge different interest rates and fees based on your credit score. Having a better credit score often means getting a better rate, so it’s worthwhile to periodically review your credit report for any errors. If you have a choice of cosigners, pick one with a good credit rating.

By carefully comparing each loan program's terms and options, you'll be sure to get the right loan for your specific needs. Using a free student loan comparison tool like eStudentLoan's LoanFinder eliminates the complexity -- Just answer a few simple questions and the loan finder will find loan options and compare them side-by-side for you. eStudentLoan makes it easy to understand so you can make an informed decision about your education loans.


eStudentLoan has been helping students and their parents compare their education financing options online since 1998.


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Shawn Lindstrom
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