If you’ve managed to navigate the FAFSA and secure every scholarship possible, but still find yourself short on tuition funds, you may be considering a private student loan. Your first instinct is probably to reach out to Sallie Mae or Wells Fargo, but they are not the only lenders out there. In fact, smaller lenders tend to offer much better rates, and shopping between them can mean a lot of savings for you. That’s especially true since interest rates can sometimes vary by more than 5% between lenders
Here’s an example of what different interest rates can look like:
Let’s say you want to borrow $10,000 to pay back in 10 years (120 months).
Loan #1: Interest Rate = 10.25%, after 120 months you will have spent $6,024.68 additional in interest, making the grand total of your loan $16,024.68.
Loan #2: Interest Rate = 5.25%, after 120 months you will have spent $2,875.00 additional in interest, making the grand total of your loan $12,875.00.
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The 5% difference between loans 1 and 2 amounts to $3,149.68. That’s either an extra $3,000 that you saved, or an extra $3,000 that you owe. That 5% probably didn’t mean much to you before you saw the math, but that’s a pretty big difference.
Now you can see how important it is to do your research!
If you’re stumped on where to look for inexpensive loans, start with your local banks and credit unions. Most likely, there are smaller banks in your hometown that have private student loan options that you didn’t even know about. That’s usually where you’ll find the best rates. These guys may not have the advertising budgets of the bigger banks, so you’ll have to find them.
Here are a few other options, as well:
CollegeAve – Established in 2015, CollegeAve is already a leading private student loan resource. Two former Sallie Mae executives branched off from the big bank to offer students this new lending option, with a focus on simplifying the borrowing process. CollegeAve is also known for its flexibility in allowing students to choose between repayment terms. Variable interest rates range from 1.95% to 8.89%.
CitizensOne – A student loan branch of Citizens Bank, CitizensOne is another great lender option. While Citizens Bank is not new, or small, it does offer some competitive borrowing options for students. CitizensOne is the only private student lender to offer its new “Multi Year Borrowing Option.” With this loan feature, borrowers can lock in their loan terms to reserve funding for multiple years. This bank also provides special offers that, if they opt-in, students can save up to 0.5% on their interest rates. Fixed rates with CitizensOne can be as low as 5.75%, and variable rates can be as low as around 3%.
U-fi – Also established in 2015, U-fi partners with Nelnet and Union Bank and Trust Company to provide both private student loans and student loan refinancing. Although this company is brand new, it’s already making great strides in the market. It sets itself apart from the others by offering great borrowing terms like cosigner release, discounts for good grades, several term options and even a cash back program. Variable interest rates range from 3.56% to 8.06% and fixed interest rates range from 5.51% to 11.76%.
Reunion – In January 2014, Reunion acquired SLFC (Student Loan Finance Corporation), and with it, all of the company’s knowledge surrounding student loans. Reunion now, through SLFC, offers
iHelp – a tool for helping students find inexpensive private loans. iHelp works through a network of community banks to provide students with private loan options. Interest rates are variable and can range from 2.82% to 7.49%.
LendKey – LendKey works with community lenders and non-profit credit unions to help applicants find loans available in their area. Some of the lenders who sign on with LendKey will offer students lower rates based on good grades, or a 1% interest rate reduction once the borrower has paid back 10% of the original loan amount. Students can apply for loans through the LendKey.com website to see what is being offered in their areas.
There are even websites, such as the Student Loan Marketplace, that will compare options for you. Once you provide your information, the site will show you loans between several different lenders so that you can compare them all side-by-side. This site, in particular, will show you actual loans rather than examples with interest rate ranges, so that you can see what’s really available per lender. Another great feature of this comparison tool is that it asks you about the three most important features you need in a loan (ex: lowest total cost, cosigner release, interest only while in school, etc.), and bases results off of those needs. You’ll see on your results page that it takes local banks and credit unions into consideration based on your location, too.
Student Loan Marketplace is also different from other loan comparison sites in that it doesn’t rely on lender reimbursement, so the results students see aren’t biased toward any lenders. This helps students and families trust that they are seeing honest results. What that also means is that the Student Loan Marketplace must charge users ($7.99) per one year of use. The exception is if your school is sponsoring use of the site, in which case, you can access it for free. Make sure and check with your financial aid office about whether or not your school is sponsoring Student Loan Marketplace. If you’d prefer to use a free loan comparison site, you can check out SimpleTuition and/or Elmselect.
The right loan comparison tool can make finding your loan much easier. It not only saves you thousands, but saves you a lot of time as well.
So, if you find you need a private loan to close the gap when paying for school, do yourself a favor and compare your loan options. Because, as you can see, comparison shopping will save you thousands over the life of a loan.
by Brooke Cobb, a Journalism graduate of West Virginia University’s class of 2012. She contributes to the College Money Insider blog in an effort to help others to learn from her own college money experiences, the good and bad!