Tips for Choosing the Right Private Student Loan Lender

bulram | August 31, 2012

Right Private Student Loan Lender

Getting the right student loan lender could mean the difference between getting a loan you can pay for and going bankrupt as soon as you graduate from college. Student loans are often thought of as somehow “easier” to service than regular personal loans. The truth is that college loans are just as risky, if not more so, than non-educational loans. However, you can mitigate the risk associated with student loan debt by following a few simple tips.

Compare Monthly Payments and Total Costs

When you apply for a loan, make sure you fully understand what your monthly payments will be. Just because you get a deferral on the payments until your graduate doesn’t mean you should know what the loan is going to cost you in the future. Additionally, the total cost of the loan is equally important. Don’t forget that interest adds to the total loan amount. If you borrow $50,000 to go to college, you can bet that the total cost of the loan is far higher than that.

Compare Loan Terms

Student loans might put you into a bind if they have prepayment penalties. Many people want to eradicate their debt as soon as humanly possible. Prepayment penalties make that a painful experience. A prepayment penalty assesses additional charges (i.e. a penalty) for paying more than the minimum amount due on the loan every month. You might think this is crazy, but check your loan documentation and the truth in lending paperwork before you sign on the dotted line. If your loan comes with a prepayment penalty, ask the lender to waive this before you sign. If he won’t do it, find another lender.

Also be sure to check the loan forgiveness options and the term of the loan to make sure it fits with your overall financial goals.

Compare Customer Service

Customer service is often overlooked when shopping for a student loan. It shouldn’t be. Check to make sure that the bank’s website is user-friendly, that there are multiple ways to make payments, that the bank doesn’t charge fees for making payments over the phone (hint: some do).

Look at Lender Credibility

This might seem like an odd thing to check out but is your lender credible? What is the reputation of the bank? Search forums, the BBB, and (if possible) ask people you know who are customers of the bank to see what it’s like to work with them. The last thing you want to do is get a loan from a bank only to find out it has a history of selling loans to other banks, harassing borrowers for money after they’ve made payments on time, or calling to sell you other services you don’t want or need.

Choose Student-Friendly Lenders

Some lenders go out of their way to understand your needs as a borrower. There are banks out there that understand the needs of students and new graduates and are very accommodating. Other banks don’t specialize in student loans and often don’t understand the special needs of students and recent grads. Choose a lender that has your best interests at heart.

Shop Around

Finally, it should go without saying that shopping around is a must. Check out at least five different lenders before settling on one. While student loans are offered at fixed interest rates, many lenders still offer variable rate loans. In a low interest environment, a variable rate loan will be very beneficial as it keeps your loan payments (and interest) low. If you think you can pay off the loan before interest rates rise, this might be your best option. If you like the predictability of fixed rate loans, then choose this option. Lastly, don’t be afraid to tell a lender you need time to think about what bank you want to use. A good banker will understand how important the decision is for you and won’t try to push you into a loan you’re not ready for.

Author Bio:?Guest post was contributed by Justin Epley for OnlineMBA.ohio.edu – find out more about MBA Health Care Administration. Justin is a freelance writer and a financial consultant. His articles appear on various online finance publications.