Choosing Your Private Student Loan Lender

A private student loan lender is a separate and distinct lender from those who offer government backed loans. Unlike loans that are offered by the Department of Education, private student loan lenders do not have to abide by the same repayment flexibility rulesor options for loan forgiveness. As such, it is very important when choosing a private student lender to take a number of factors into consideration. 

Interest Rate

The first and most important factor to consider is your interest rate because this will directly impact your payment on a monthly basis. Your interest rate is essentially the amount of money the lender requires back from you because they let you borrow money. As a basic example, if you borrow $100 and you have a 6 percent annual interest rate, you'd have to pay $6 a year in interest. The higher the interest rate, the higher your monthly payments and the more expensive your loan will be overall. 

In-School Deferrals?

Most student loan lenders allow for you to defer payments when you are in school. When considering private student loan lenders, make sure they offer this option. If you are unable to work while going to school, you can't make loan payments. Find out how long you will have for a grace period after graduation. Keep in mind that just because you are not making payments, it doesn't mean the loan amount is not growing. Most loans will have your loan balance increase during your deferment period. Essentially, you will be accruing interest without reducing the balance at all. 

Repayment Terms

Most government student loan lenders offer you a few different repayment terms: you may be able to repay based on a percentage of your income or to repay the loan over a 10 year or 25 year period. When you choose a private student loan lender, you need to find out what the repayment obligations are. Ask if you can choose a plan that lets you pay your loans over a longer period of time in order to make your loans more affordable. If not, then you may want to shop around for lenders who offer you more flexibility. 

Repayment Incentives

Some lenders offer you incentives, like reductions in interest rates, if you make your payments on time for a set number of months. Also, they give you a discount if you set up direct withdrawals from your bank account. These incentives can save you a lot of money, so it is worth shopping around for a lender that offers this service. 

Loan Forgiveness

Some lenders may offer to forgive portions of your loan balance if you work for a set number of years in public service. This is less common with a private student loan lender than with a government lender, but it is still important to shop around for lenders who offer this if you are considering working in a public interest field. 

The financial aid counselors at your school can also help you shop around for a private student loan lender, but you should always do your own research as well. 


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