How to Find the Right Private Student Loan

June 10, 2010 | posted by Jeff Sheely.

Having graduated from college in the last few years, many of my friends are starting to return to school for their graduate degrees. When they receive their acceptance letters, the first thing they do is carefully read everything in the admissions and financial aid packets cover-to-cover. Ok, so maybe not. However, once the celebration is over, they get down to business and begin to worry about how to pay for two to four more years of school without being saddled with debt for the rest of their lives. This is when my phone rings.

The calls from friends seeking advice on finding good student loans start in mid-March and continue through September. The conversation is always the same: How-are-you-I’m-great-say-hello-to-your-family-for-me-and-oh-by-the-way-(deep breath)…where can I get a loan for school that I can actually afford? At this point, it’s my turn to take a deep breath and attempt to explain the often baffling financial aid process.

After ensuring that they have followed the basic steps of financial aid, from filling the FAFSA to maximizing their grants, scholarships, work-study and federal loan options (including PLUS/Grad PLUS if they can), the conversation shifts to filling their aid gap with private loans. At this point, I always advise my friends to shop around and consider all of the available private student loan options. Why? Because the wide range of potential rates out there is staggering!

Shop Around for the Best Rate

A prominent blogger, Tim Ranzetta, recently applied as a co-signer for private loans from six different lenders (Wells Fargo, Chase, Citibank, Sallie Mae, Discover and SunTrust) – and found that “the range of interest rates they offered [him] varied from 7.0% to 12.125%.” That’s a spread of over five points – enough to make a difference of thousands of dollars over the life of a loan.

Given this great disparity in potential rates, what is a borrower to do? Apart from reconsidering where you go to school, you can take control of the situation by doing some comparison shopping for private loans.

It is more important than ever for you to be fully informed of your options before taking out a private loan. With FICO recently announcing that shopping around for student loans within a reasonable time frame will have little to no impact on credit scores, the time has never been better for you to make the extra effort and save yourself some money.

How to Make an Effective Loan Comparison

So what should you look for when shopping? There are many factors to consider:

  • total cost,
  • monthly payment,
  • APR,
  • interest rates
  • and fees.

In the Student Loan Marketplace, we provide side-by-side lender comparisons including these and other rates and terms that are personalized for you based on your academic and financial information. As you’re comparing your options, you have the ability to sort them by Total Cost, Monthly Payment or ARP to help you choose based on what loan fits best into your financial picture.

Take special care to see how certain options you choose, such as the repayment type, can affect your total cost and monthly payment. By choosing to make payments while in school, even if they are interest only payments, you can save yourself thousands of dollars in capitalized interest over the life of your loan. Additionally, be sure to evaluate the borrower benefits offered by lenders. Many banks give you the opportunity to save money by setting automatic online payments or simply by paying on-time every month.

Is Comparison Shopping Really Worth It?

So how do my friends react when I advise them to comparison shop? At first they wonder if it will truly make a difference, but once they see their options side-by-side in the Marketplace, they are amazed at how much they can save.

In fact, the average Marketplace loan over the past year was 6.24% with zero fees compared to the national average of 10-12%. Over the life of a typical private loan, that’s a savings of around $4,000 in total money repaid.

So before you choose a lender for your private loan, make sure you take the time to compare your options – it could make a huge difference for your financial future.


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